EUROPEAN COMMISSION

Brussels, 5.11.2020

SWD(2020) 254 final

COMMISSION STAFF WORKING DOCUMENT

EVALUATION

of Directive 2008/48/EC on credit agreement for consumers

{COM(2020) 963 final} - {SEC(2020) 371 final} - {SWD(2020) 255 final}

Table of contents

1.Introduction

Overview of the Consumer Credit Directive’s provisions    

Purpose of the Evaluation    

Scope of the Evaluation    

2.Background to the Directive

Context of the EU intervention    

Intervention logic    

Baseline - the situation before interventions    

3.Implementation / state of Play

The consumer credit sector 2008-2019    

4.Method

Study to support the Directive evaluation    

Stakeholder consultations    

Experience Gained from the European Commission Consumer Financial Services Action Plan    

Literature review    

Robustness of the findings    

5.Analysis and answers to the evaluation questions

Effectiveness    

EQ1 – To what extent has the Directive achieved its objectives? Have the scope of application and the definitions facilitated or hindered the achievement of the objectives? What are the main benefits and drawbacks of the Directive?    

EQ2 – To what extent has the Directive led to legal clarity? What is the level of compliance of businesses and their enforcement?    

EQ3 – Is the Directive – through advertising requirements, pre-contractual information (including Standardised European Consumer Credit Information and Annual Percentage Rate of Charge) and other additional information – ensuring that consumers are effectively provided with accurate, clear, concise, timely and comprehensive information free-of-charge?    

EQ4 – How have the provisions relating to creditworthiness assessments worked in practice? To what extent have the provision of the Annual Percentage Rate of Charge and the performance of a creditworthiness assessments contributed to helping consumers find the credit best suited to their needs and avoid over-indebtedness?    

EQ5 – To what extent do the conditions of access to credit databases on cross-border basis vary across the EU?    

EQ6 – How have the provisions relating to the rights of withdrawal and early repayment worked in practice? How frequently are consumers making use of them?    

EQ7 – Have the scope of application and the definitions used in the Directive succeeded in ensuring a high level of consumer protection and performance of the internal market for consumer credit?    

Efficiency    

EQ8 – What are the costs and benefits (including any reduction in consumer detriment) associated with the Directive and what are they influenced by? Can they be considered proportionate?    

EQ9 – To what extent are the provisions of the Directive cost-effective? Are there any provisions particularly hampering the maximisation of the benefits?    

EQ10 – Is there scope for simplification and burden reduction? What provisions or areas of the Directive could be simplified to reduce the burden on stakeholders without undermining the effectiveness of the Directive?    

Coherence    

EQ11 - To what extent is the Directive internally coherent?    

EQ12 – To what extent is the Directive coherent with other national-level consumer policy and legislation (including legislation going beyond the scope of the Directive, relevant for consumer credit)?    

EQ13 – To what extent is the Directive coherent and complementary with other relevant EU-level legislation?    

EQ14 - To what extent are the provisions of the Directive and their implementation at national level coherent with national and EU-level data protection legislation?    

Relevance    

EQ15 - Are the objectives of the Directive still relevant? Does the Directive address current and anticipated future needs and challenges (e.g. market developments, consumer behaviour and needs), including those of consumers and providers?    

EQ16 - How relevant and adapted are the scope, thresholds and definitions in the Directive to the current market situation?    

EU added value    

EQ17 - Where does the EU added value of the Directive lie? Would the benefits delivered by the Directive have been achieved in the absence of EU-level intervention?    

6.Conclusions and lessons learned

Annex 1: Procedural information

Annex 2: Stakeholder consultation – Synopsis Report

Annex 3: Methods and Analytical models used in preparing the evaluation

Annex 4: Key concepts and definitions

Annex 5: Overview of the implementation of the Directive

Annex 6: Coherence with other EU pieces of legislation

Annex 7: Selected bibliography

Annex 8: Evaluation Questions

1.Introduction

Overview of the Consumer Credit Directive’s provisions

The Consumer Credit Directive (hereinafter, “the Directive”, or “CCD”) addresses consumer credit between EUR 200 and EUR 75,000 (and over when the credit is destined for the renovation of a residential property) such as loans granted for personal consumption, including automotive vehicles, household goods and appliances, travels, as well as overdrafts and credit cards. By contrast, overdraft facilities 1 to be repaid within a month, interest-free credits, 2 hiring or leasing agreements without an obligation to purchase are among the main types of credits excluded from its scope.

The most important Directive provisions are the following:

-Standard information to be contained in advertising: advertising concerning credit agreements 3 , which indicate an interest rate or an element of the cost of the credit, have to include standard information about all the cost elements of the credit by way of a representative example.

-Pre-contractual information: for all credit offers, the consumer 4 will receive a Standardised European Consumer Credit Information (SECCI 5 ) sheet, to be used by all creditors 6 at EU level. It sets out all the essential information the consumer needs in a clear, standard way.

-Annual Percentage Rate of Charge (APR) - the Directive establishes an EU wide method of calculation for the APR, which expresses the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of the credit.

-Right of withdrawal 7  - once consumers have concluded a credit contract, they have 14 days to withdraw from the credit without having to give any reason

-Right of early repayment - the Directive grants to consumers the right to repay early at any time. Under certain circumstances, however, the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment.

-Creditworthiness - the Directive also imposes an obligation on creditors to assess the creditworthiness of the consumer prior to granting a credit. Such assessment can be done by checking credit databases, for which the Directive imposes non-discriminatory conditions in the event of cross-border access to these databases.

Purpose of the Evaluation

This Staff Working Document presents the result of the REFIT 8 evaluation of the Directive, launched in 2018 9 and part of the REFIT initiatives annexed to the 2019 Commission Work Programme 10 . In line with the Better Regulation guidelines 11 , the main purpose of the evaluation is to assess the effectiveness, efficiency (including potential for simplification and burden reduction), relevance, coherence and EU added value of the Directive, analysing whether it remains fit for purpose in today’s legal, economic and technological environment.

The Commission has launched this evaluation in response to a REFIT Platform opinion on the Consumer Credit Directive 12 adopted in September 2017 recommending that the Commission assess the relevance, effectiveness and efficiency of the standard information requirements to be included in advertising, as per Article 4 of the Directive.

Moreover, Article 27(2) of the Consumer Credit Directive, specifies that the Commission “shall undertake, every five years, […] a review of the thresholds laid down in [the] Directive […]. The Commission shall also monitor the effect of the existence of the regulatory choices [therein] [by Member States] on the internal market and consumers” 13 .

The work performed under the 2017 Consumer Financial Services Action Plan 14 - following which the Commission undertook to explore ways of facilitating cross-border access to consumer credit whilst ensuring a high level of consumer protection, as well as to seek to introduce common standards for creditworthiness assessment 15 and credit registers and monitor the distance selling market of financial services – also feeds into the evaluation.

Scope of the Evaluation

The evaluation covers developments since the adoption of the Directive (in 2008) until September 2019. The evaluation covers all EU Member States (MS), although in some instances information and data gathering refers only to a limited sample. These instances are indicated in the text of the Staff Working Document (SWD).

2.Background to the Directive

Context of the EU intervention

Origin of EU intervention in the field of consumer credit

Council Directive 87/102/EEC of 22 December 1986 laid down rules at Community level aimed to bring about “a certain degree of approximation of the laws” 16 concerning consumer credit agreements. It covered credit agreements - other than mortgages - longer than three months between ECU 200 and 20,000 but with several exemptions (e.g. credits to be repaid in maximum four payments in a period up to 12 months, zero interest rate loans, etc.). Directive 87/102/EEC introduced the inclusion of an Annual Percentage Rate of Charge (APR) and its calculation and communication to the consumer, as well as the right for the consumer to discharge the obligations under a credit agreement before the time fixed by the agreement – with an equitable reduction in the total cost of the credit. In 1990, the Directive was amended by Directive  90/88/EEC concerning the APR calculation.

At Member State level, the protection of consumers and the consumer credit market was uneven, as Directive 87/102/EEC only provided for minimum standards of consumer protection. This led to Member States introducing additional provisions that covered other types of credit and credit agreements not covered by the Directive. 17 Differences in legislation included, for example, different time limits and procedures in connection with the credit agreement, such as ‘cooling off’, ‘withdrawal’ and ‘cancellation’, as well as repayment.

In 1995 and 1996, the Commission presented two reports on the operation of the Directive, after having consulted relevant stakeholders 18 . These reports revealed substantial differences between the laws of the various Member States, which used a variety of consumer protection mechanisms in addition to the Directive. Such differences in some cases led to distortions of competitions among creditors and created obstacles to the internal market.

Development of the 2008 Consumer Credit Directive

The revision of Directive 87/102/EEC was considered necessary to address a series of factors including technical problems in connection with accessing another market, a lack of adequate harmonisation as regards national legislation and the changes to the methods and styles of credit that had occurred since the 1980's.

The Commission first presented a proposal –dated 2002– for a revised version of Council Directive 87/102/EEC, which aimed at offering a fully harmonised set of provisions to provide for a higher level of protection to consumers. However, negotiations between the European institutions on consumer protection standards were protracted and involved substantial changes, leading to revised proposals in October 2004 and again in November 2005. In 2008, the revised proposal was finally adopted and the Directive repealed Directive 87/102/EEC.

Although modelled on Directive 87/102/EEC, the Directive went significantly further, with the introduction of a defined scope and a right to withdraw, as well as a better defined right to early repayment.

While the Directive is mainly of full harmonisation nature 19 , Member States were given a certain degree of flexibility in implementing some of the rules.

Intervention logic

The Directive has two main objectives, namely to improve consumer protection and to foster the emergence of a well-functioning internal market for consumer credit. These objectives are intended to be achieved by the Directive’s provisions (indicated in the graph below as content/inputs).

The first objective of improving consumer protection includes three specific objectives:

1)informing consumers about the costs and conditions of the credit they request,

2)providing consumers with rights to terminate their contract, and

3)fostering responsible lending among credit providers.

The second main objective of fostering the emergence of an internal market for cross-border credit provision includes two specific objectives:

1)facilitating cross-border access to consumer credit offers, and

2)ensuring a level-playing field between creditors by providing a harmonised framework.

The objectives of the Directive at the time of its drafting were intended to respond to key needs 20 . Primarily the realisation that the existing Directive 87/102/EEC was not fully responding to the needs of consumers and this was leading to reported consumer dissatisfaction with the quality of consumer protection. In addition, the absence of a single credit market meant sub-optimal demand and offer of consumer credit. The different levels of consumer protection standards across the Member States had led to differences in legislation and lending practices. Finally, the increase in the number of consumer credits, the development of new types of credit and the related risks for consumers (surcharge, insolvency) needed to be addressed too.

The objectives of the Directive are linked to a set of specific provisions (inputs), that correspond to given articles of the Directive. These relate to the provision of information at the advertising and pre-contractual phases (Art 4 and 5), the definition of the Annual Percentage Rate of Charge and its calculation (Art 19), the rights of withdrawal and early repayment (Art 14 and 16), and the obligation on creditors to perform a creditworthiness assessment (CWA) of the consumer (Art 8), which is accompanied by rules on credit database access (Art 9). These inputs in turn lead to outputs consisting in the transposition 21 , the practical application and enforcement of the Directive, and other effects (such as the application to other areas or elements outside the scope of the Directive). These outputs are therefore directly measurable in terms of their transposition or practical application and functioning in Member States.

Flowing from these activities, two outcomes can be expected: firstly, enhanced consumer awareness and empowerment through access to clear information: this allows the consumer to be able to withdraw from credit agreements and to more easily repay them early. This information protects the consumer against inappropriate lending practices. Secondly, improved functioning of the internal market for consumer credit through ease of access in cross-border credit provision and establishing a level playing field between providers. These two outcomes should ultimately result in a high level of consumer confidence and protection, and free movement of credit under optimal conditions for both consumers and credit providers.

Finally, there are several external factors outside the remit of the Directive. This includes changes to the consumer credit market (the growth of e-commerce) and wider digitalisation trends and new developments in financial technology. In addition, the harmonisation in the EU following the implementation of the Directive does not impact the wider socio-economic differences between Member States and which explain credit demand and supply, as well as factors such as interest rates. There are also discrepancies in the status, mandate and resources/power of national authorities and enforcement bodies, and consumer associations.

Baseline - the situation before interventions

The main baseline for the evaluation is the situation prior to the adoption of the Directive. The situation accounted for in 2008, year of adoption of the Consumer Credit Directive, is considered as baseline for the evaluation of the Directive. An additional point of comparison could be the situation following the 2008 financial crisis. However, as highlighted by the 2014 Commission report on the implementation of the Directive, some Member States implemented it after the stipulated deadline and therefore in 2014 it was difficult to identify the impact of the regulatory choices exercised by the Member States 22 .

The consumer credit sector leading up to 2008-2010

In the early 2000s, the consumer credit market in the EU experienced high levels of growth 23 . Household 24 debt - which include all types of debt such as personal loans 25 and mortgages - have shown constant increase from the late 90s until 2010. Household debt was an important driver of the economic growth during the pre-crisis period. Stable levels of inflation lowered households’ constraints of liquidity and enabled consumers to switch from saving to borrowing. However, the credit expansion was also boosted by the development of the Single Market integration in financial services, innovative credit products and the overall optimistic outlook of the EU economy 26 . The positive outlook, combined with the still low interest rates over 2003 – 2005 resulted in consumers taking more credits.

The share of household consumption financed by credit 27 and the level of indebtedness remained relatively constant over the first decade of the 2000s. On average, 12.4% of household consumption was financed through consumer credit. The level of consumer indebtedness 28 corresponded on average to 18.3% of their individual income (wages and salaries).

In 2008, the average interest rate in the Eurozone for consumer credit 29 was 8.9% per year. This interest rate had been fairly stable since 2003. Only after the financial crisis did the average interest rate slowly go down, to around 6% in 2019 30 .

In terms of how common personal loans were in the EU, there are no hard data. However, it is possible to estimate the share of EU citizens with a personal loan in 2006 from the 2011 Special Eurobarometer 373 31 . Incidence rates in 2006 ranged from 2% in Italy to 21% in Denmark.

Figure 2 - Estimated share of EU citizens with a personal loan in 2006

Source: ICF elaboration of Eurobarometer 373 data

The same can be done for credit cards 32 . The 2006 data show large discrepancies in the estimated number of citizens with a credit card across the EU, ranging from 5% in Hungary to 69% in Luxembourg. While there is equally no hard data on the total number of credit cards available, the wider trend can be seen from the total number of payment cards in circulation in the EU, which shows strong growth of the total number of cards over the period 2000-2010 33 , also – importantly – influenced by enlargement in 2004 and 2008.

On the cross-border dimension of financial services, results from the 2011 Special Eurobarometer 373 34 revealed that a rounded 1% of consumers acquired a credit card in another Member State, as opposed to 0% for personal loans. However, the share of respondents that considered acquiring a credit card in another country amounted to 3%, and 2% for personal loans.

Consumer trends and issues faced around the time of the entry into force of the Directive in 2010

The process in the years 2002-2008 leading up to the adoption of the Directive in 2008 showed a number of issues and developments on the consumer credit market that set the 2008 baseline, such as 35 :

·Increase in the types of credit used by consumers, for instance the overdraft facility on current accounts, leading to a wider concept of “consumer credit”;

·Indication of there being inadequate protection of consumers by the existing legislative framework, inter alia because of differences among Member States in banking/financial practices (in 2002, more than 35% of consumers considered that the legislation was not protecting their rights 36 );

·Because of differences in national legislations, distortion of competition as a result of different protection levels;

·Limitations to the acquisition of cross-border credit because of barriers linked both to the supply and demand side (see explanation below);

·Wide difference in transparency of financial services among Member States;

·Insufficient available remedies.

For instance, the 2011 Special Eurobarometer 373 shows that a high number of respondents (78%) who acquired a personal loan in the five years before 2011 had received written information about the product. In terms of product comparison, 57% of those getting a personal loan had compared several products before making a decision, while 42% took the first product outright. However, this masks substantial differences ranging from 82% of respondents in Bulgaria comparing products to 35% in Cyprus. For credit cards on average 46% of respondents compared products, and 52% had not.

The acquisition of a consumer credit was predominantly done face-to-face with the provider (76% of consumer surveyed) and through an intermediary or advisor (13%). Distance means were not common (6% of the credit obtained online and 4% by phone).

This survey sheds further light on the main barriers which hampered the purchasing of financial products cross-border. This includes a lack of demand, with consumers considering that offers on the national market were sufficient (32% of consumers surveyed), that they had a preference for products from their home country (23%) or found the language barrier problematic (17%). In addition, consumers felt that they lacked clear information about offers available (21%), were unaware of their rights in a cross-border context (18%), and were worried about fraud or crimes (15%) or about lower levels of consumer protection in other Member States (5%). These figures mask however substantial differences across Member States. For instance, lower levels of consumer protection were cited as a concern about cross-border purchase by 15% of those in Sweden and 0% in Estonia, Greece and Poland.

3.Implementation / state of Play

According to Article 27(1) of the Directive, Member States were required to transpose the Directive before 11 May 2010. All Member States have transposed the Directive by the end of 2011 (some of them later that the deadline imposed by the Directive), with no infringement proceedings being completed (16 were initiated for failure to communicate national implementing measures on time while 4 Member States failed to ensure its timely entry into force or effective application, but all cases were closed soon after) 37 . Twenty Member States transposed the Directive by adopting new legislation, while the rest introduced amendments to pre-existing legislation. No systematic deficiencies in the transposition of the Directive by Member States were identified 38 .

The Directive was transposed in all Member States with a view to achieving maximum harmonisation. Flexibility was nevertheless given to national lawmakers for nine optional provisions under Article 27(2) that offer the possibility for Member States to make use of particular regulatory choices. For instance, Member States had the legal option to decide that the Annual Percentage Rate of Charge would not need to be provided in advertising for overdraft agreements, and eight of them made use of this legal option 39 .

In addition, some provisions of the Directive set clear objectives but do not clearly specify the result to be achieved. This gave Member States some additional discretionary power.. National transposing measures have often gone beyond the requirements of the Directive, laying down additional elements to further protect consumers (e.g. introduction of caps on interest rate). Full details are available in Annex 5.

The consumer credit sector 2008-2019

After almost a decade of marked growth in the volume of personal credit for consumption, the 2008 financial crisis began a period of contraction that lasted until 2014. The volume of credit for consumption has since recovered, with an average annual growth of credit for personal consumption above 4% since 2015.

Figure 3 - Average annual growth rate of credit in % for personal consumption in the Eurozone (2008–2019) and financing of vehicles for private use (2012–2017)

Source: ICF (2019), developed with data from the ECB (monthly Economic Bulletin 2015–2019 and Economic Bulletin 2008–2015) and Eurofinas (Key Facts & Figures 2012-2017).

Note: No data on automotive financing for 2008-2011, 2018, 2019. Data for 2019 on personal consumption credit only cover Q1.

The overall picture of total consumer indebtedness shows decreasing trends until 2014, as of which the level of indebtedness is increasing again 40 .

At the same time, the problem of loan arrears is common among vulnerable consumers, especially in some Member States, and may be symptomatic of a risk of over-indebtedness 41 , 42 . In 2018, 3.3% of households had arrears on mortgage or rent payments, 2.1% on hire purchase instalments or other loan payments and 6.6% on utility bills 43 . Many European households continue to find it difficult to make ends meet 44 .

Figure 4 - Share of household consumption financed by credit and consumer indebtedness in the euro area economy, post-crisis

Source: ICF elaboration. Note: The share of household consumption financed by credit = consumer credit outstanding amount / household expenditure. Consumer indebtedness = outstanding consumer credit amount / household income.

Consumer credit and revolving credit interest rates have gradually dropped since 2008. Low interest rates should result in consumers taking on more credit.

Figure 5 - Interest rates for consumer credit in the Eurozone, 2008–2019

Source: ICF, based on ECB data [MIR.M.U2.B.A25.I.R.A.2250.EUR.O;MIR.M.U2.B.A2Z1.A.R.A.2250.EUR.N]. Note: data on revolving credit and overdrafts not available for 2008-2010.

There is no comparable data on the number of EU citizens with a personal loan, but in 2016 the share of EU citizens with a personal loan was around 11%, down from 13% in 2011 45 .

Figure 6 - Estimated share of EU citizens with a personal loan in 2011 and 2016

Source: ICF elaboration of Special Eurobarometer 446 and 373 data

Based on EU population data, it is estimated that in 2018 there were around 59.8 million EU citizens with a personal loan, 46 and a total number of personal loans in the EU of 71.8 million 47 .

The number of consumers opting for credit cards has increased slightly since 2011, with 43% of Europeans having a credit card in 2016 (three percentage points (p.p.) higher than in 2011), compared to 11% who had a personal loan (two p.p. lower than in 2011) 48 . The share of EU citizens with a credit card has risen by 3% over the period 2011-2016, according to Eurobarometer figures, ranging from 11% in Hungary to 84% in Luxembourg 49 .

Figure 7 - Estimated share of EU citizens with a credit card in 2011 and 2016

Source: ICF compilation, based on Eurobarometer 446 and 373 data

The total number of payment cards has gradually increased in the EU, going up from 474 million in 2010 to 544 million in 2018 50 . Credit cards and revolving credit - a line of credit where consumers pay a fee to a financial services provider to borrow money if and when needed – are covered by the Directive if the amount borrowed falls under its scope of application.

The 2016 Eurobarometer 446 shows no evolution since 2011 on the number of European consumers having obtained a loan or a credit card from a provider based in another Member State (still between 0 and 1%). However, consumer concerns with purchasing financial services from another Member State have somewhat evolved: the number of consumers not knowing their rights in case something goes wrong went down from 18% to 13% between 2011 and 2016. Similarly the importance of the language barrier went down from 17% to 12% over the same period. Nonetheless, general consumer preferences (finding the offer in the national market sufficient, preferences to buy face-to-face or from a local provider) have remained stable.

Finally, an important market development since 2010 has been that of short-term high-cost (STHC) instalment loans 51 - especially payday loans 52 – which have warranted particular attention in several Member States during the last decade. This type of credit is usually taken by consumers who are hard-pressed to meet their financial needs 53 . The credit amount is relatively small and the initial duration short, although such loans are very likely to be extended over time. Payday loans are a relatively small, high-cost instalment loan that has to be repaid over a short term, or until “payday” 54 . Since 2008, the provision of payday loans 55 has expanded across the EU and are now available in many Member States, as highlighted by a recent OECD report 56 .

Payday loans are often offered through digital channels. Digitalisation has expanded rapidly from 2008 to 2018, as pointed out by various indicators. On the one hand, there has been a steady decline in the number of financial institutions, in particular banks, denoting a trend towards fewer points of sales and increased online activity. Similarly, the number of bank branches decreased by 27% from 2008-2018, while the number of bank employees reduced by 14% over 2009-2018. 57 On the other hand, online banking penetration in the EU has increased steadily since 2008. In 2018, around half (51%) of EU adults were using internet banking 58 . This share is constantly increasing and has nearly doubled since 2008, when it stood at 29% 59 .

Limited/no data 60 is available on the average amount and duration of consumer loans.

4.Method

Main sources of data

The evaluation took place between June 2018 and October 2019 and drew on the following main data sources – in addition to data on infringement cases and complaints already at the disposal of the Commission:

Study to support the Directive evaluation

The Study 61 was outsourced to ICF S.A. in November 2018 to feed into the evaluation of the Directive. Its main objective is to provide evidence on whether the current Directive framework is still fit for purpose, analyse developments and lessons learned since 2008 and evaluate the overall functioning of this piece of legislation in relation to its original objectives and to those which arose during its implementation. It focuses on in-depth consultation with stakeholders but also relies on other tasks: legal analysis, literature review, cost and benefits analysis and mystery shopping 62 exercises (both offline and online).

Stakeholder consultations 63

The full report of all stakeholder consultation activities undertaken for the evaluation is annexed hereto (Annex 2: Stakeholder consultation – Synopsis Report).

·Online public consultation

The public consultation on the evaluation of the Consumer Credit Directive ran, on the EU survey website, between 14 January and 8 April 2019. The objective of this consultation was to obtain the views of citizens and relevant stakeholders on the functioning of the Directive. The public consultation questionnaire was tailored to two main categories of stakeholders: the general public (i.e. consumers) and stakeholders who are involved in the implementation of the Directive or who have detailed knowledge of the functioning of the different elements of the Directive and their impact on the consumer credit market. In accordance with the Better Regulation guidelines, the consultation was available during 12 weeks and respondents could reply in any of the 24 official EU-languages. The questionnaire attracted 234 responses. An initial summary report 64 of the findings was published in May 2019.

·Online surveys

As part of the study, to get a more detailed knowledge and reach a variety of stakeholders, the contractor launched and promoted online surveys for consumers and creditors. The consumer survey 65 ran between 6 and 18 March 2019, targeted consumers in the EU28 and gathered a total of 3.886 replies on first-hand experience in accessing consumer credit. The creditor survey was launched in February and stayed open until the end of April 2019. 51 banks 66 and non-banks 67 , 68 replied to it.

·Stakeholder event

The Commission organised a stakeholder event in Brussels (“Protecting consumers in the digital era: can we do better 69 ”, co-organised with CEPS) on 18 June 2019 to present the interim findings of the evaluation and gather feedback from relevant stakeholders. More than 140 participants attended the event, exchanging on Directive-related issues like scope, pre-contractual information and advertisement, creditworthiness assessment and responsible lending.

·Ad-hoc meetings

Several ad-hoc meetings with relevant stakeholders (e.g. consumer associations and industry representatives) took place in the course of 2018 and 2019 to discuss the evaluation of the Directive.

·Consultation of relevant expert groups

In evaluating the Directive, the Commission also consulted two relevant expert groups: the Expert Group on the Implementation of Directive 2008/48/EC on Consumer Credit 70 and the Financial Services User Group (FSUG) 71 . While the first one met in two occasions (January and November 2019) to provide input to the Commission from the different national perspectives, the FSUG delivered in April 2019 an opinion 72 on the evaluation of the Directive.

·Contributions received from stakeholders

While carrying out the evaluation, the Commission - often in the context of ad-hoc meetings - has received several contributions (e.g. position papers, statistics, report etc.) from different stakeholders, which have all been passed on to the contractor for the purpose of the study and/or analysed by the Commission itself. It is worth underlining the Information Report 73  adopted by the European Economic and Social Committee in July 2019. It is based on the consultations of 30 Civil Society organisations (CSOs – representing consumers, employers and workers) and national authorities in order to understand how they experienced and observed the impact and the changes brought about by the Directive.

Experience Gained from the European Commission Consumer Financial Services Action Plan

Under the 2017 Consumer Financial Services Action Plan, the Commission undertook three initiatives in the field of consumer credit, which delivered relevant insights and experiences:

·exploring ways of facilitating access to loans across borders while addressing consumer over-indebtedness linked to credit activities (Action 7);

·working with Member States at identifying national approaches and best practices to credit worthiness assessment for consumer credit (an obligation under the Directive) and access to credit databases (Action 9); and

·monitoring the distance selling market to identify the potential consumer risks and business opportunities (Action 12).

Discussions have taken place with stakeholders (creditors, authorities, consumer organisations) to understand the barriers faced in the cross-border provisions of consumer credit. These include legal and technical barriers (know-your-customer requirements as per anti-money laundering requirements, difficulty in checking the identity and creditworthiness of consumers), language barriers and questions around applicable law.

With the input of the national authorities in charge of enforcing the Directive, the Commission has developed a mapping 74 of national approaches to creditworthiness assessment. Results show that Member States are approaching the implementation of this provision in very different ways.

The Commission has also conducted a Behavioural study on the digitalisation of the marketing and distance selling of retail financial services 75 , finding out that digitalisation has given rise to new market practices –often legally problematic-, impacted providers and their business models. It has also analysed how to provide information to consumers via behavioural experiments and tested the effectiveness of solutions adopted recently at EU level.

Literature review

A number of studies informed the evaluation, including the Behavioural study on the digitalisation of the marketing and distance selling of retail financial services (2019, London Economics Europe, VVA Consulting, Ipsos NV, ConPolicy and Time.lex) and the Study on Measuring Consumer Detriment in the European Union (2017, Civic Consulting).

The full list of academic and grey literature used for the support study to the evaluation is available in Annex 7.

Limitations and robustness of findings

Limitations

The following limitations should be taken into account:

-the data collected to establish the baseline was limited;

-limited information was available for short term high cost loans, overdrafts, linked credit, and cross-border access to databases;

-it was not possible to gather comprehensive data from complaints at national level specifically related to consumer credit;

-in the course of the evaluation, and in the framework of the supporting study, data was sought on credit provision from non-banks, but it became very challenging to gather hard data on non-banks credit providers.

Whenever quantitative data are lacking, this is counter-balanced or complemented with qualitative analysis, estimates and assumptions. In addition, in order to mitigate these limitations, during the evaluation additional industry stakeholders were approached for input and further desk research was carried out. The inherent limitations of the findings of public and targeted consultations, reflecting the views of a sample of stakeholders, should also be taken into account. Nonetheless, efforts have been made to ensure a balanced consultation of all relevant stakeholder groups.

Robustness of the findings

The quantitative analysis of the consumer detriment and the contribution of the Directive to its reduction, described in Annex 3 as well as in the supporting study, is considered to be robust as it follows the detailed operational guidance to scientifically sound and resource efficient assessments of personal consumer detriment in markets across the EU developed in a 2017 study commissioned by the European Commission 76 .

5.Analysis and answers to the evaluation questions

This section presents the findings of the evaluation, based on the triangulation of evidence collected through the different means presented above. Findings are grouped under each of the Better Regulation criteria, contributing to an in-depth analysis of the functioning of each of the key elements of the Directive.

Effectiveness

The effectiveness analysis considers how successful EU action has been in achieving or progressing towards its objectives.

EQ1 – To what extent has the Directive achieved its objectives? Have the scope of application and the definitions facilitated or hindered the achievement of the objectives? What are the main benefits and drawbacks of the Directive?

The Directive has two overarching objectives: 1) to ensure a high level of consumer protection and 2) to foster the emergence of a well-functioning internal market.

Objective 1: Ensuring a high level of consumer protection

Overall, the Directive has been partially effective in ensuring a higher level of consumer protection than was the case before its adoption. The majority of stakeholders interviewed 77 considered the Directive effective in ensuring better protection of consumers. Of the consumer associations interviewed, only a slight majority (just over 50%) of respondents considered the Directive effective in this respect, compared to a substantial majority (over 75%) of industry representatives, Member States and enforcement bodies. A majority of respondents to the Open Public Consultation also considered the Directive effective in this respect. 78

The transposition of the Directive indeed triggered substantial reforms of the consumer credit environment in most Member States 79 . New elements were introduced by the Directive, in particular in relation to pre-contractual information Standardised European Consumer Credit Information (SECCI) and advertisement, as well as the right of withdrawal. These elements have, over time, helped to ensure a higher level of consumer protection. These provisions are considered positive and largely effective by most national authorities, consumer associations and consumers themselves (about their practical working see the specific sections - EQ3, EQ4 and EQ6). Other areas, such as requirements on the Annual Percentage Rate of Charge (APR), already existed prior to the Directive but were completely harmonised, affording a high level of consumer protection across the EU.

Studies from the early 2000s showed that consumers expressed a need for further harmonisation, and this has generally been overcome by the Directive as overall consumer protection standards have gone up.

The ability of the Directive to fully meet its objective of ensuring a high level of consumer protection has however been hampered by a number of specific legal developments. The Directive aims at offering a sufficient degree of consumer protection to ensure consumer confidence. An uneven level of consumer protection across the EU leads to fragmentation and unequal conditions to access credit products in other Member States. Even if cross-border activities concern a small part of credit agreements, they are important because they can increase competition and ultimately consumer choice; moreover they are expected to increase thanks to digitalisation.

Some of these legal developments are directly linked to a few provisions of the Directive, which have been implemented in various ways by Member States. In addition, Member States have regulated differently various credit-related issues not covered by the Directive. As such, even though the Directive has fully harmonised several aspects of the provision of credit, the overall level of consumer protection in this sector is somewhat fragmented across the EU. 

It depended on political choices made by the co-legislators to exclude several types of consumer credit from the scope of the Directive, which, depending on the Member States, may have then been somehow regulated by specific rules at the national level. This aspect is further analysed under EQ7.

Another example concerns a few provisions 80 of the Directive, which have given rise to different implementation and interpretation across Member States (see EQ3, EQ4).

Furthermore, in many instances 81 , Member States have added elements to their own consumer credit legislation, usually imposing additional requirements on creditors and affording greater protection to consumers. The fact that Member States have felt the need to add such measures may indicate that the Directive was not considered entirely sufficient by Member States to ensure a high level of consumer protection, often adapted to national specificities. This is particularly relevant in relation to the objective of the Directive of ensuring responsible lending, where Member States have gone beyond the Directive provisions to address specific forms of problematic lending practices (e.g. see EQ4 for more details).

Finally, the difference in remedies and enforcement structures (for more details, see EQ2) available for consumers across the EU has meant that, while a fairly high level of consumer protection standards exists, its application is uneven which somewhat limits the achievement of the objective.

Objective 2: Facilitating the emergence of a well-functioning internal market

Between 2008 and 2019, cross-border household loans have remained almost unchanged 82 at around 0.9% of all outstanding credit in the eurozone. The lack of significant changes in these figures suggests that the Directive has had little noticeable impact on cross-border access to credit 83 . The consumer credit market in the EU remains predominantly national. With the exception of consumer associations (whose opinions were divided on whether the Directive has facilitated cross-border access to credit and resulted in increased competition at EU level), all stakeholder groups agreed that the Directive has not triggered a significant increase in cross-border operations or EU-level competition. 84 Similarly, while national authorities were relatively positive about the impact of the Directive on the level of consumer protection in cross-border operations, the Directive is seen by the vast majority of stakeholders as having had little or no impact in this respect. 85

The lack of an internal market for consumer credit is due in part to the way some of the Directive provisions have been implemented, and mainly to the fact that the Directive, on its own cannot actually achieve this objective because of its limited set of provisions 86 , and because of external factors influencing offer and demand.

Perceptions of distortion of competition between creditors in the internal market due to different protection levels were largely addressed by the Directive in the form of a more level playing field with the same standards applying across the EU. This is particularly the case in relation to aspects fully harmonised by the Directive such as the Annual Percentage Rate of Charge (APR), the rights of withdrawal and early repayment as well as the Standardised European Consumer Credit Information (SECCI).

On the demand side (as explained in Section 3) general consumer preferences like finding the offer in the national market sufficient, and preferences for obtaining a credit locally, appear to have remained unchanged over the past 10 years 87 , 88 . Consumers also lack information about existing cross-border offers of financial products 89 , 90 . In addition, the lack of knowledge among consumers of available redress mechanisms 91 and of applicable legislation in case of cross-border purchase deter consumers from obtaining credit from another Member State. Indeed, 23% of the consumer surveyed mentioned the uncertainty about their rights abroad as the main reason for not looking for a credit in another Member State. Lack of language skills was also mentioned as a reason by 14% of respondents.

There is however a growing interest among consumers for cross-border credit offers: 29% of the respondents to the consumer survey said they had looked for a credit from a creditor located in another EU country. This compares to only 2% in 2011 92 who said that they would potentially buy a personal loan in a foreign EU country 93 . However this demand is often unmet as traditional creditors rarely target consumers in other countries. Moreover, access to offers available in another country is often limited due to geographical restrictions 94 . In the digital realm, geo-blocking techniques are used by credit providers to re-route consumers or prevent the conclusion of a transaction, effectively denying access to credit for cross-border consumers. 95 , 96

In 2015, the European Commission echoed the then recently adopted Digital Market Strategy and anticipated that actions seeking to avoid geo-blocking and other types of geographically-based discrimination would be taken. Although a new Regulation on geo-blocking was adopted in 2018 (Regulation (EU) 2018/302), financial services have been specifically excluded from its material scope for the time being. The Geo-blocking Regulation is currently under review.

These restrictions may include the requirements imposed by providers on consumers wishing to obtain a credit from a creditor based in another Member State to provide an ID or social security number, address, telephone number or tax declaration from the country where the creditor is based as pre-requisite for the transaction to be accepted. This was corroborated by the mystery shopping exercise for this study during which it proved impossible to obtain cross-border credit 97 . Some creditors have a policy of refusing credits to individuals which they consider do not have sufficient economic and personal links with the Member State in which these creditors are established. This can even lead to the impossibility in practice for some people to get a credit in any Member State. 98 This reveals that we are still far from a well-functioning EU internal market for credit products.

These restrictions are the expression of the barriers faced on the offer side, whereby because of the fragmented regulatory framework (uneven implementation of the Directive and a lack of harmonisation of other rules relevant for creditors e.g. tax and civil law, legal framework for debt recovery, and anti-money laundering obligations) 99 , 100 and differences between markets and consumer preferences (e.g. consumers unaware of the possibility of seeking cross-border credits or unsure of their rights in another Member State, or language barriers 101 ), most creditors prefer to operate on a national basis 102 . However, newly emerged fintech companies offering unsecured loans to consumers in various Member States – whose market share is currently insignificant compared to traditional credit providers - could have an impact on the future development of a cross-border market.

Regulatory fragmentation and the consequent lack of exploitation of synergies and economies of scale in the internal market raise costs for providers who want to sell on another market (which are then passed on to consumers), reduce the offer available and make it more difficult for consumers to know the regime which is applicable in another Member State.

EQ2 – To what extent has the Directive led to legal clarity? What is the level of compliance of businesses and their enforcement?

Consumer credit legislation in the EU remains very fragmented, limiting the impact of the Directive on legal clarity. This fragmentation is due both to how the Directive has been implemented by Member States 103 but also by aspects not covered by the Directive which have been regulated differently across the EU (see EQ1, EQ3 and EQ4 for more details).

Nevertheless, compared to the baseline, the Directive has managed to improve legal clarity in terms of most requirements on the right to withdrawal, right of early repayment, Standardised European Consumer Credit Information (SECCI), Annual Percentage Rate of Charge (APR) and advertisement. More problematic is the situation around creditworthiness assessment (CWA) (see EQ4).

As explained in EQ1, the Directive has partially achieved this objective, as it has increased the level of harmonisation in the aspects it covers. Despite these improvements, there are indications that legal clarity has not improved in all areas since the adoption of the Directive. Very few stakeholders believe that the Directive has brought more legal clarity 104 . Most credit providers stated that the lack of clarity in respect to their obligations is the second most important obstacle they face in complying with consumer credit legislation 105 .

The discretion left to Member States (due to the limited scope of application and the high number of regulatory choices), combined with the vague wording of some provisions, has limited the ability of the Directive to achieve legal clarity and has led to uneven implementation and enforcement of the Directive across Member States 106 , 107 .

However, this lack of legal clarity should not be attributed exclusively to the Directive, as providers of consumer credit operate in a complex regulatory framework combining EU and national rules.

This evaluation generally finds that compliance is high, with Member State authorities and enforcement bodies generally agreeing. However, the lack of legal clarity might have led to divergent situations in Member States, and hence to fragmentation, despite the high compliance of providers with national requirements.

87% of the respondents to the European Economic and Social Committee (EESC) survey found that the Directive had been fully and effectively enforced. However, some stakeholders, in particular consumer associations, enforcement authorities and consumers themselves have identified issues in relation to all provisions of the Directive 108 . The use of information in advertising that is not ‘clear, concise and prominent’ or does not include a representative example of the APR are the most commonly identified breaches of the Directive’s provisions. Poor CWAs and the provision of pre-contractual information without using the SECCI or without providing individualised information were also identified by stakeholders, albeit to a lesser extent 109 . Stakeholders also noted some issues of poor communication of the right of withdrawal and non-compliance with the 14-day period 110 , and the amount to be repaid in compensation to creditors (right of early repayment).

There is no comprehensive data on sector compliance itself. Based on the Consumer Market Scoreboards from 2010 and 2017, the share of consumers who experienced at least one problem went down from 14% to 8%, which is an indication that the Directive has been effective in increasing compliance with its provisions. However, a 2011 consumer credit sweep 111 on “buying consumer credit online”, showed that across the then EU-27, Norway and Iceland, only around 45% of over 560 websites were deemed to be compliant 112 .

In terms of enforcement and remedies, there are vast differences in existing practices across the EU. Judicial remedies are available to consumers in different forms. At the same time, specific sanctions also differ, with Member States applying monetary and/or criminal sanctions, as well as other administrative sanctions, for breaches of the Directive.

For enforcement, a variety of different authorities are involved. In most Member States, the enforcement authority is either the financial supervisory authority, the consumer protection body or the national bank. A small majority of Member States have only one enforcement body responsible for compliance with the Directive, while almost half have appointed several bodies 113 for ensuring correct implementation of the different aspects of the Directive 114 . While the powers and responsibilities with which these bodies are entrusted are generally very similar across Member States, the enforcement activities differ. For instance, annual inspections are carried out in a couple of Member States 115 , with random inspections taking place in others 116 .

The EESC survey nonetheless highlights that 30% of respondents find that supervising authorities do not have sufficient resources, staff and powers to ensure effective enforcement of the Directive. The EESC report also points out that this situation varies greatly between Member States.

The consumer is able to pursue remedies against the creditor when there are problems with its credit agreement. The extent and type, however, are determined by Member States 117 . Since remedies are not harmonised in the Directive, this results in practice in different levels of consumer protection across the EU in case of non-compliance with the Directive. The likelihood of consumers needing or requesting to pursue remedies depend on the scale of the problems they encounter. This evaluation’s survey showed that 26% of those experiencing any issues did not make any complaint, while 50% took it to the creditor, 23% to a third party 118 . These figures do not seem to have changed since 2011 119 .

Administrative complaints and alternative dispute resolution mechanisms are available in all Member States. Consumers can seek support from institutions such as the consumer Ombudsman and other enforcement bodies or consumer associations. These bodies receive official consumer complaints and can handle cases outside of courts.

Criminal sanctions 120 are found in Austria, Belgium, Denmark, Finland, France, Hungary, Ireland, Latvia, Luxembourg, the Netherlands, Poland, Slovenia and the United Kingdom. Monetary sanctions vary considerably 121 across Member States, with different levels of sanctions applied for serious or less serious infringements of the law. Six Member States apply the administrative sanction of suspending creditors for a limited period of time, or permanently for repeated offences 122 . One common administrative sanction is the suspension of the creditor’s activity in case of repeated offenses. There is therefore a huge disparity in terms of the types and levels of sanctions used by national authorities when enforcing the Directive. The survey carried out by the EESC shows that 40% of respondents would be in favour of the Directive harmonising these penalties (versus 26% who would be against and 33% without opinion) so that they are “effective proportionate and dissuasive (…), [and] harmonised as far as possible, so as to avoid a dumping effect whereby operators base themselves wherever controls are more lenient and sanctions less severe”.

The fragmentation of the consumer credit legislation in the EU, which limits the impact of the Directive on legal clarity, and the considerable differences in enforcement tools and remedies used by competent authorities, present a significant obstacle to the development of a well-functioning internal market for consumer credit 123 .

EQ3 – Is the Directive – through advertising requirements, pre-contractual information (including Standardised European Consumer Credit Information and Annual Percentage Rate of Charge) and other additional information – ensuring that consumers are effectively provided with accurate, clear, concise, timely and comprehensive information free-of-charge?

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Member States and creditors’ associations consulted agree that all required information is provided at the advertising stage in accordance with Article 4 of the Directive. However consumer associations consulted in the course of this study raised issues with the provision and presentation of this information 124 . A handful of stakeholders, mostly representing consumers as well as enforcement bodies, have indeed reported cases of non-compliance in relation to incomplete or missing information in advertising, in particular when it comes to the conditions attached to the credit agreement which are either omitted or presented in a misleading way by advertising low or favourable interest rates without indicating the conditions attached 125 .

Overall, views collected are split as to whether the current requirements are effective to inform consumers: 53% of stakeholders responding to the Open Public Consultation (mainly consumer organisations and authorities) considered the provisions of Article 4 somewhat effective or very effective whilst 42% (mainly business representatives) considered it somewhat or very ineffective. The survey carried out by the European Economic and Social Committee shows similar results 126 . However, the effectiveness of the provision on advertising has been somehow confirmed in the online environment. The results of a recent behavioural study suggest that the provision of the Annual Percentage Rate of Charge (APR) and the representative example in advertisings displayed online is effective in pushing consumers to compare other offers 127 .

The clarity and prominence of information included in advertising is debatable in some cases, as also hinted by stakeholders. The display of the information in advertising (the framing, the colours, the fonts etc.) is recognised as having a strong impact on consumer decision-making 128 . The wording of Article 4 is vague and does not ensure that the information is provided consistently and presents all the necessary information in a clear and understandable way 129 . Member States have often gone beyond the requirements of Article 4, either by mandating additional information that should be provided to the consumers in advertising or by specifying presentational requirements.

Issues have also been identified in relation to advertisements about consumer credit aired on television and radios, with important information either shown for a very limited amount of time or spoken very quickly, not giving consumers enough time to process and recall it 130 . This would suggest the difficulty of Article 4 in being effective consistently across all media types, with a consequent risk of information overload for consumers (see EQ 9).

In addition, some compliant advertising practices have been mentioned by consumer associations as being still potentially unclear, incomplete or somewhat misleading for consumers, together with aggressive marketing strategies that could lead consumers to engage in imprudent borrowing 131 . Time-limited offers may increase pressure on consumers to make a rapid decision based on relatively complex information, possibly leading to the choice of a non-optimal credit 132 . This is all the more probable when considering that often this type of credit targets more vulnerable consumers, in some instances including targeted spamming via SMS and email 133 . Several of the online mystery shops (17%) revealed advertising that offered products for a limited amount of time, with the majority found either on comparison websites or on websites accessed via a comparison website. 134  

Some Member States have decided to legislate on the topic and prohibit their use 135 . However, information may still attract consumers and entice them into making a purchase without properly considering their options even without a time-limit. This is the case of ‘baiting rates’ which may attract consumers with an example that is very low and not representative for most consumers. Doing so may mean that the actual repayment rates will be much higher 136 , shedding doubt on whether the information provided can be considered ‘accurate’. This practice was observed in 40% of online mystery shops.

Pre-contractual information

Stakeholders acknowledge that the Standardised European Consumer Credit Information (SECCI) has had a positive impact on consumer protection by providing them with information in an easily understandable and well-structured format 137 . Nearly two thirds of respondents to the Open Public Consultation and 85% of the consumers surveyed considered the SECCI to be effective.

68% of consumers surveyed for this evaluation indicated to have received the SECCI, a finding backed up by the mystery shopping where the SECCI was provided in 74% of the cases 138 . The fact that not all consumers indicate that they have received the SECCI could be explained by two factors: a lack of creditors’ compliance or a lack of consumers’ awareness about documents received 139 .

The provision of the SECCI is considered by all stakeholders to have increased consumer awareness of their contracts. However, its length and complexity may create, in some instances, barriers to the proper understanding of the information included therein 140 . Indeed, Open Public Consultation individual respondents are split on whether they understand the information contained in the SECCI: 49% somewhat or totally agreed with information contained in the SECCI being easy to understand while 27% disagreed, and 47% considered it well-presented (while 29% disagreed). Overall, around 70% of the respondents to the consumer survey found the SECCI helpful or somewhat helpful.

The use of excessively technical language may create confusion and an inability to properly grasp the details of the contract that one is about to sign. In a recent study, consumers rated the understandability of the information at 2.91 out of 10 and 73% reported signing contracts they did not fully understand 141 . Different levels of financial literacy 142 among consumers and their ability to understand the information contained in the SECCI can also reduce its effectiveness. Complex documents do not cater to consumers with low levels of financial literacy 143  which, as shown by behavioural studies, have difficulties in understanding key credit information such as interest rates or the APR, for example 144 . Nonetheless, maybe also as a consequence of the Directive, the ability of consumers to search and compare products and services in the credit market has gone up, since 2010, from 6.6 to nearly 7.2 on a 10-point scale 145 .

The length and amount of pre-contractual information has also been flagged as potentially problematic. In the Open Public Consultation, opinions from individual respondent were split on whether information was concise (35% thought it was, 36% thought it was not), implying that it may not be fully effective 146 . Beyond the length and complexity of pre-contractual information, the way it is disclosed to consumers also plays a key role in its effectiveness. Indeed, while the majority of creditors 147 provides this information in full 148 , the format in which they do so is not necessarily facilitating consumers understanding. This is particularly true in the online environment, where providers can use certain techniques in the disclosure of information that can impact negatively consumers’ understanding of credit offers, as demonstrated by behavioural research 149 .

Some stakeholder representing both consumers and creditors found that the format and length of the SECCI is not particularly adapted for mobile technology. In the online environment, it can be provided under a hyperlink, limiting the likelihood for consumers to actually open it and read it 150 . How information is conveyed is important in pre-contractual information, particularly online.

Understanding complex information is not helped by the fact that information is not always provided sufficiently in advance to allow for a proper review. In fact, research has shown that most credit agreements could be concluded just a few days after being requested. Some credits can even be released in a few minutes 151 . This is also used as a marketing tool for enticing consumers to a swift and efficient conclusion of a contract 152 . Indeed, speed of delivery is both a selling point for creditors and an element that consumers consider when choosing between credit options 153 . The wording of Article 5 of the Directive allows for a broad interpretation of the amount of time to be granted to consumers before they sign an agreement. The Open Public Consultation showed that 44% of individual respondents did not consider the time available to read and fully understand pre-contractual information as sufficient 154 . The consumer survey shows that 40% of respondents received it on the day they signed the contract. Some Member States have tried to remedy this by either providing guidance 155 or including more details in the transposing legislation 156 so as to ensure that consumers have sufficient time to review the SECCI.

EQ4 – How have the provisions relating to creditworthiness assessments worked in practice? To what extent have the provision of the Annual Percentage Rate of Charge and the performance of a creditworthiness assessments contributed to helping consumers find the credit best suited to their needs and avoid over-indebtedness?

Provision of Annual Percentage Rate of Charge

The provision on the Annual Percentage Rate of Charge (APR) was introduced to provide a numerical and comparable representation of the cost of credit to consumers 158 , though it should be noted it preceded the current Directive and existed already in the previous Directive. Calculation of the APR is entirely harmonised, with the formula implemented uniformly.

The APR is used by consumers to select their credit offer: 90% of the individuals who replied to the Open Public Consultation considered the APR as somewhat important or very important in their decision. 75% of stakeholders responding to the Open Public Consultation consider the APR effective, while 60% of respondents to the European Economic and Social Committee survey consider that it enables consumers to compare credit offers across the market. However, stakeholders (across all groups) acknowledge that the APR, both as a formula and as a tool, is difficult to understand 159 , especially in light of low levels of financial literacy 160 . According to the consumer survey, 40% of consumers either did not know about the APR or did not understand its contents.

This lack of awareness and understanding by consumers shows an important limitation of a tool considered helpful. Indeed, when correctly conveyed and understood, the APR works well as a comparison tool and helps consumers to choose the credit most appropriate to their needs. This has been established through observations of consumer behaviour and confirmed by stakeholders. 161 However, obstacles persist that limit its effectiveness as a comparison tool for consumers. In addition to those mentioned above, it is worth mentioning how the APR is presented in advertising, such as how it is displayed (font size, prominence) by providers.

Difficult understanding of the APR may be exploited to foster cross-selling practices. 162 This is particularly detrimental for consumers in case of tying practices, i.e. the offering of a credit agreement in a package with other distinct financial products where the credit is not made available to the consumer separately 163 . But also if optional products are advertised as though they were a compulsory and integral part of the credit. This evaluation estimates that cross-selling practices can affect up to 25 million consumers, and is the single most common practice that affects consumers. 164 While this is based on consumer self-reporting and some consumers might not remember having received the APR (which is possible in view a general level of awareness of only 60% according this evaluation’s survey), it does show that there might be a relatively small degree of non-compliance. Non-compliance among credit providers, a lack of understanding among consumers, and low levels of financial literacy all reduce the effectiveness of the APR.

Creditworthiness assessment

The obligations to ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer’s creditworthiness on the basis of “sufficient information” 165  has been implemented differently across the EU. Although Article 8 has been fully transposed, its practical implementation varies significantly between Member States, leading to a diverse regulatory landscape, as shown by a mapping of national approaches in relation to creditworthiness assessment (CWA) carried out by the Commission. 166 The majority of Member States defined more detailed information to be taken into account in the CWA. 167 In a number of them the consultation of databases is compulsory for creditors. 168

This implies, that, depending on the Member States, the amount and categories of data collected by creditors, as well as the techniques to do so, differ greatly.

Member State authorities consulted were even split as to whether the regulatory fragmentation causes problems, while almost two thirds of credit providers agree that this does not create problems (possibly a reflection of the current state of the credit market in the EU, which remains predominantly national for creditors). 

However, two thirds of enforcement bodies considered existing requirements – in particular the provision of “sufficient information” – to be unclear and problematic and two thirds of consumer associations held the view that consumers are dissatisfied with current CWA practices. On the other hand, credit providers, when expressing their opinion on this point, all agreed on the usefulness of the provision, though a few suggested discretion in how they should be performing this obligation.

In carrying out CWAs, creditors may choose to rely on information that is specific to the individual consumer (current income, outstanding financial commitments, savings, etc.) 169 or to consumer type. In Denmark, for example, CWAs are primarily based on statistics rather than an individual consumer’s ability to repay or their economic situation. 170

Stakeholder views are mixed on the effectiveness of the CWA obligation in helping consumers finding the credit best suited to their needs and preventing over-indebtedness, as demonstrated by the survey carried out by the Economic and Social Committee and the stakeholders’ replies received as part of the Open Public Consultation. Consumer associations are evenly split as to whether creditors in their Member State consistently carry out CWAs and whether they currently are sufficient and appropriate. Results from the consumer survey and individual responses to the Open Public Consultation suggest nonetheless that creditors check in 80% of the cases whether the consumer is able to repay the credit.

An overall trend that has changed the way CWAs are carried out is digitalisation. Compared to the baseline, digitalisation has de facto increased the number and categories of data about consumers generated online. This evolution is impacting CWA methodologies which are evolving rapidly, with innovations focusing on the use of unstructured data in CWA based on data-scrubbing, social media and machine learning 171 . An increasing number of creditors (primarily fintech companies 172 , including peer-to-peer lending) are using such types of assessment.

Such novel techniques are presented by the industry as a way to help consumers with a thin credit profile to obtain a loan which they would, under more traditional CWA practices, not be able to receive. However, they raise questions in terms of their actual added value compared to more traditional techniques. These practices, which are often directed at vulnerable consumers, can indeed circumvent the need for a solid credit history and sound financial situation 173 but it is unclear their accuracy and robustness on the assessment of the ability of the consumers to reimburse the credit. They also raise questions in terms of respect of data protection legislation,in particular the principles of transparency, fairness, data minimisation and purpose limitation. 174 . There are also concerns about the algorithms used to calculate consumers’ credit scoring for the purposes of a creditworthiness assessment, especially with regard to their logic, data sources used, significance and envisaged consequences for the consumer, which entail a number of potential risks, such as opaque decision-making, race/gender-based or other kinds of discrimination. 175 .

Similarly, the Directive does not provide guidance on the approach to be taken based on the outcome of the assessment, i.e. whether the credit should be granted or rejected, depending on whether the CWA outcome was positive or negative. Providers might grant credit to consumers with negative creditworthiness assessment because of a long-lasting relationship with them and awareness of temporary economic difficulties. However, some providers’ business model is actually based on high interest rates for all consumers to cover the risk of default of some of them (see EQ 7).

While rejecting a credit application in case of negative creditworthiness assessment outcome is not required by the Directive, it has been interpreted by the Court of Justice of the European Union (CJEU) 176 that it does not preclude Member States from adopting such an approach.

CWAs to an extent aim to foster responsible lending 177 (see EQ 15 for more details) and thus to help reduce over-indebtedness. The CJEU 178 has confirmed that creditworthiness assessments as per Article 8 of the Directive are “intended to protect consumers against the risks of over-indebtedness and bankruptcy”. Consumer credit, especially when it is provided at high interest rates, can be an important source of financial difficulties of households 179 . Less financially stable households are among those which will have greater difficulty in passing a CWA, making them more likely to turn to short-term and high-cost-type credit. Lower levels of compliance with the CWA obligation have been identified among this type of credit 180 . In certain cases, poor performance in repayment is considered to be part of the creditor’s business model, compensated by very high interest rates.

Stakeholders differ in their opinions on how CWA should be performed and there is no consensus as to whether the methodology should be harmonised at EU level 181 . These different approaches may present an obstacle to the facilitation of an internal market, as they do not help to create a level playing field for creditors.

Overall, the open-ended character of the provision of the Directive on how to perform credit-worthiness assessment did not impact the regulatory and practical divergence of national approaches preceding the Directive. Lack of harmonisation in how CWA should be performed was also raised by several stakeholders as a reason hampering cross-border credit. In May 2020, the European Banking Authority published Guidelines on loan origination and monitoring providing requirements for CWAs in relation to secured and unsecured lending 182 , which should lead to more convergence in how CWA is carried out across the EU. The guidelines will apply as of 30 June 2021.

The role of creditworthiness assessment (CWA) and Annual Percentage Rate of Charge (APR) in protecting consumers from inappropriate lending and practices

Several Member States have put in place specific “product governance” measures – not foreseen in the Directive - either aimed at banning certain credit products, capping interest rates or at regulating specific credit product characteristics as these were considered as potentially too costly/harmful for consumers. This would imply that, on their own, CWA and the provision of the APR are not perceived as being effective enough to protect consumers from bad loan decisions and that more stringent measures were deemed necessary by Member States to protect consumers from certain credit products.

This is confirmed by the results of the Open Public Consultation and stakeholder survey: two thirds of Member State authorities did not consider the provision of the APR and the CWA obligation as sufficiently effective to protect consumers and argued for various additional measures, including stricter requirements and alignment with the Mortgage Credit Directive on responsible lending standards (see section on coherence). Similarly, the survey of the Economic and Social Committee shows that 47% of stakeholders that answered find that the CWA obligation is not sufficient to help prevent situations of over-indebtedness.

EQ5 – To what extent do the conditions of access to credit databases on cross-border basis vary across the EU?

Articles 8 of the Directive states that the creditworthiness assessment can be made on the basis of consultation of the relevant database and that Member States who require creditors to check such databases can retain this requirement. Article 9(1) further establishes that access to such databases shall be granted to credit providers from other Member States on a non-discriminatory basis. 16 Member States impose the obligation to consult a database in order to assess creditworthiness 183 .

The consultation of credit databases at national level appears to be functioning generally well, although a number of issues have been reported by a few credit providers consulted for this evaluation. In some cases, explicit restrictions are allegedly imposed on certain credit providers 184 . Issues reported also relate to the quality and depth of the information contained, or to the retention period of such information. Although only a few Member States reported different requirements for foreign providers, industry representatives specifically referenced the different requirements to access credit databases in other Member States or the differences in the content of such databases as one of the main obstacles to accessing the information needed to conduct creditworthiness asessments for foreign consumers 185 .

Since the Directive did not establish the nature, coverage, type 186 and breadth of the data contained in the databases, these differ extensively between Member States, obstructing the effective exchange of data across Member States. This lack of uniformity in the data can also give a incomplete picture of the consumer that can prevent credit providers from carrying out a sound creditworthiness assessment 187 .

Indeed these databases can include only negative data (such as in France, where the public register only includes data about arrears on repayment or application to the over-indebtedness commissions) or, most frequently, both negative and positive (such as ongoing financial commitments) data 188 .

There is also a growing push from certain credit providers and credit registers to include “non-traditional data” (such as data from GPS, social media, web-browsing) in these database. However the added value of such data, its proportionality and compliance with data protection rules is challenged, for instance by consumer organisations 189 (see EQ4). Data protection authorities are looking into the functioning and content of credit databases, as demonstrated by the recent Code of Conduct approved by the Italian Data Protection authority, and which notably frames the use of peer-to-peer lending data 190 .

Along with these explicit limitations, the principle of reciprocity plays a significant role in the limitation of access to credit databases in a cross-border context. It requires credit providers to supply the same type of data that they wish to access through the credit database, but the lack of standardisation in the data to be collected and reported limits the exchange of information between Member States. Moreover certain national legislations impose limits on the categories of data that can be processed (and shared) by databases for creditworthiness assessment purposes.

Private credit databases have nonetheless tried to develop bilateral reciprocity agreements to facilitate cross-border data access to credit databases 191 . Most Member States authorities consulted indicated that conditions of access do not differ based on the location of the creditor while many did not know and only a few thought they did differ. Between half and two thirds considered the conditions of access to work well in practice, while around 10% disagreed, arguing for harmonisation of its contents 192 .

In the EU, the most common institutional design relies exclusively on private credit databases 193 , followed by a dual system combining both public and private databases 194 . Five Member States have an exclusively public credit register 195 , while Luxembourg has not set up any credit database.

There are no exact figures available on cross-border access to database.

EQ6 – How have the provisions relating to the rights of withdrawal and early repayment worked in practice? How frequently are consumers making use of them?

Article 14 of the Directive defines the right of withdrawal and sets a 14-day period for withdrawal from the contract. Such right of withdrawal applies also to ancillary services. 196 and to linked credit agreements 197 covering contracts for the supply of goods or services for which the consumer excercises a right of withdrawal. Article 16 of the Directive establishes the right of early repayment, which allows the consumer to repay their credit, partially or in full, before the end date of the agreement.

Right of withdrawal

Most stakeholder groups believe that the right of withdrawal is functioning well. Industry representatives were unanimous in stating that the right of withdrawal is respected, while the majority of enforcement bodies, Member State ministries and regulators, and consumer associations believe it to be working well. 80% of respondents to the Open Public Consultation found the right of withdrawal effective, making it the second most effective provision of the Directive, according to respondents. There are no indications of significant problems in the functioning of the right of withdrawal.

The number of consumers withdrawing from credit agreements is very low across Member States, around 1% on average. Consumers are highly aware of the right of withdrawal 198 . The majority were aware (72%) and informed of their right by the credit provider (75%), before signing a credit agreement. There seem to be potential compliance issues in some cases, however, as 15% of the consumers surveyed were not informed of their right prior to signing the contract. Other stakeholders also noted small compliance issues, where credit providers refused to apply the right of withdrawal on consumer request. The extent to which this is the case cannot be ascertained from the data available.

Recurring issues with the right of withdrawal mainly relate to a lack of clarity on its application to linked credit agreements. Specific issues raised were cases where the financed object was not mentioned in a linked credit agreement, or where the consumer terminated a credit agreement in accordance with Article 15(1) for a contract for the supply of goods or services, but the seller refused to take back the goods, or where the service provider went bankrupt and the consumer had nowhere to apply for a service or goods return. Another issue with linked credit agreements is the joint liability of the creditor under Article 15(3), as it is not clear whether the creditor is responsible for goods that have not been supplied when the seller disappears or goes bankrupt.

Other problems included lack of awareness of the right of withdrawal in some Member States and difficulties with creditors respecting consumers’ right of withdrawal (with some refusals noted 199 ). A significant minority 200 of consumers had experienced creditors making it difficult for them to exercise their right of withdrawal. Consumer associations generally held that the right to withdrawal is well-respected, but a few issues were raised about awareness of the 14-day withdrawal period and delivery of the notice in time.

German Courts held consumers had a perpetual right of withdrawal where the consumer does not receive all of the correct pre-contractual information or is given incorrect information, meaning that –under specific conditions- they could withdraw from the credit agreement for an unlimited period of time. Slovakia also has a perpetual right of withdrawal but reported no associated problems.

Right of early repayment

All industry representatives stated that the right of early repayment is respected, while the majority of other stakeholders agreed that it functions well. According to the Open Public Consultation, 80% of respondents believe the right of early repayment to be effective. In fact, they consider it the most effective provision of the Directive. Despite this, a fairly large number of consumers reported experiencing issues with the right of early repayment.

A significant majority of consumers are aware of the right of early repayment, with 75% informed by the creditor about their right before contracting the credit. The number of consumers making use of early repayment is quite high, with around one-quarter of consumers making early payments to pay off their credit. This increased slightly between 2013 (22%) and 2019 (27%) 201 . There is no data available on the average cost of early repayments made by consumers. Consumers nevertheless face some problems which primarily relate to the calculation of the compensation to be paid to the creditors, as the compensation was reported to be calculated incorrectly (whether deliberately or not) at times. Several stakeholders also referred to cases of disproportionate compensation fees. It is not possible to ascertain either the extent of the issue or the deliberate nature of any incorrect calculations. Calculation of the fee to be paid in cases of early repayment was more difficult for short-term loans that had to be paid back within one month, for example. Creditors’ concerns centred on their ability to recover the costs of such loans, as Article 16(2) of the Directive stipulates that ‘if the period does not exceed one year, the compensation may not exceed 0.5% of the amount of credit repaid early’.

Not all Member States impose a compensation fee for early repayment. Article 16(4)(a) offers Member States the regulatory choice to only apply the obligation to pay a compensation fee to the creditor where the amount repaid exceeds a national threshold 202 , which must not exceed EUR 10,000. Eighteen Member States have opted to use this regulatory choice, thus consumers are not required to pay compensation to the creditor, unless the amount they repay is higher than the national threshold.

Other issues reported with the right of early repayment include consumers being charged the entirety of the interest they would have had to pay for the loan and consumers not receiving all of the necessary information about their right of early repayment. In a recent judgment on these issues, the Court clarified that Article 16(1) of Directive 2008/48 gave concrete expression to the right of the consumer to a reduction in the cost of the credit in the event of early repayment by replacing the general concept of ‘an equitable reduction’ with the more specific concept of ‘a reduction in the total cost of the credit’ and by adding that therefore, the reduction must also cover ‘the interest and the costs’ 203 .

In some cases, consumers were denied the right of early repayment altogether, or creditors included clauses in the general conditions that obliged the consumer to renounce their right. The consumer survey found that more than one-third of respondents had experience of the creditor making it difficult for them to use their right of early repayment, pointing to a relatively high number of compliance issues. Similarly, a 2013 London Economics survey found that while close to one-quarter of consumers attempted to repay early, only 86% were successful in doing so.

EQ7 – Have the scope of application and the definitions used in the Directive succeeded in ensuring a high level of consumer protection and performance of the internal market for consumer credit?

Article 2 of the Directive excludes from the Directive’s scope credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75,000, with the exceptions of renovations of immovable property following the entry into force of the Mortgage Credit Directive 204 . The list of exemptions in Article 2(2) is extensive and encompasses many widely used loans, most of which were included within the scope of the Commission’s first proposal for a Directive concerning credit for consumers 205 . The limitation of the scope of the Directive means that Member States have the freedom to regulate credit agreements above or below the thresholds.

Nearly all consumer associations (over 90%) argued that the current thresholds are no longer adequate, while slightly fewer (80%) Member State authorities considering them inadequate. Among credit providers 30% considered the scope inadequate 206 . In particular, the lower thresholdwas cited as a problem. The upper threshold of the Directive did not generate as much concern as the lower limit, especially following the amendment to the Directive following the entry into force of the Mortgage Credit Directive (MCD).

Except for Cyprus and Greece, all Member States have adopted transposing measures that go beyond the requirements of the Directive. Some extend the scope of application of the Directive (or certain of its provisions) to consumer credit not covered or not entirely covered by the Directive 207 , either below EUR 200 208 , above EUR 75,000 209 or to leasing agreements 210 , overdraft facilities 211 , revolving credit 212 , mortgages 213 , credit agreements granted free of interest and without anyother charges (i.e. ‘zero-interest rate’ credits 214 ) and credit agreements upon the conclusion of which the consumer is requested to deposit an item as security 215 (e.g. credit agreements with pawnshops 216 ).

The growth of consumer credit – in both volume and value – due, inter alia, to digitalisation and fall of interest rates, has facilitated access to credit for consumers, while bringing new challenges and risks in respect to some aspects falling outside the Directive scope. These include zero interest rate loans 217 , short-term high-cost (STHC) credit 218 , and credit for leasing and hire purchase.

By setting the bar for entry within the scope of the Directive at EUR 200, potentially detrimental types of credit are excluded from its protection. These include the STHC-type credit that is more appealing to vulnerable consumers who struggle to access other types of credit due to their existing creditworthiness assessments (CWAs) 219 , as well as zero-interest rate loans. STHC loans are offered in many EU Member States, although the extent to which they are used varies between countries 220 . Under the right circumstances (i.e. properly supervised by the relevant authorities and undertaken by consumers with a good level of financial literacy), these types of credit could help to increase the financial inclusion of consumers with little or no credit history, thereby possibly also preventing them from having recourse to illegal creditors 221 . However, the high cost of such credit represents a risk in itself, particularly as most of the consumers of STHC credit are categorised as risky consumers, meaning that credit providers increase the interest rates to cover the risk of default, which, in turn, makes it more difficult for the consumer to repay. STHC credit also tends to become more expensive over time, worsening the consumer’s financial situation as he or she is forced to either use the rollover option or take up more credit to repay the initial debt. 222  These risks are further exacerbated by a widespread lack of transparency and insufficient disclosure of information to the consumer which, together with the low level of financial and digital literacy among consumers of this credit product, results in a lack of consumer awareness of the true cost of the credit. Significantly, the accessibility of this type of loan favours impulsive decisions (especially as typical payday loan marketing strategies tend to emphasise the benefits of obtaining a loan instantly), further heightening the risk of over-indebtedness. 223

To offset the potential for detrimental effects, some Member States have sought to bring them within the scope of the Directive, regardless of the loan amount 224 , which is often below the lower Directive threshold of EUR 200. The European Economic and Social Committee (EESC) also argued that the minimum threshold does not take into account the differences in the average income across the EU. 225  The stakeholder consultation exercise suggests that there is an appetite to abolish (or at least lower) the minimum threshold of the Directive, especially among consumer organisations and Member States. 226  It is to be noted, however, that stakeholders did not comment on the extent to which it could be expected for the Directive to address these types of products if they were included in its scope. Indeed, even if covered by the Directive, most of these credit products could still have a very elevated Annual Percentage Rate of Charge (APR) even if fully compliant. It does not therefore automatically address the main problems especially for more vulnerable consumers.

Credit cards 227 and revolving credits 228 can present similar issues for consumers and the extent to which they are covered by the Directive will depend on the amount borrowed (the Directive covers credits above 200 EUR and below 75,000 EUR). For instance, the extended use of credit cards can play to the disadvantage of consumers, since it rests on several behavioural biases likely to lead consumers to accumulate debt over a long period of time 229 . Consumers may consequently end up in situations where they are making minimum repayments that simply cover the interest and fees, without ever reducing the debt (i.e. persistent debt) 230 . This is highly profitable for credit providers 231 , particularly given the very high cost of a credit card. Issues of lack of information and choice between credit options were also reported by Member States in relation to revolving credits 232 . Some Member State regulators have acted to curb revolving credit, most notably in France 233 , and Netherlands 234 .Some stakeholders see the need to cover specific products currently exempted from the scope of application of the Directive or benefitting from a lighter regime, like those listed below. They claimed that reducing the number of exceptions would also contribute to legal clarity, limiting risks of circumventing Directive rules.

Overdraft facilities are credit agreements that allow consumers to become overdrawn up to a certain limit at a set interest rate, effectively acting as pre-approved credit. 235 Overrunning 236 , on the other hand, are not pre-agreed and usually entail very high interest rates and additional fees for the consumer. Although there is no EU-wide data on the extent to which overdraft facilities are used by consumers, national data from France and Germany suggest that they are increasingly used in some Member States as alternatives to payday loans and revolving credit. 237 One of the main advantages of overdraft facilities is that they constitute a useful tool to cover small and sudden financing needs. However, like credit cards, they are a very expensive credit product compared to instalment consumer credit, and in some cases even compared to payday loans. 238  The use of overdraft facilities also entails similar risks to those linked to credit cards 239 . In addition, consumers risk misunderstanding the conditions applicable to the overdraft facility in terms of costs, limits, etc. While the Directive covers overdraft facilities that do not need to be repaid within one month, some ambiguities remain regarding those to be repaid within one month. Overrunning are only subject to a ‘light regime’ under Article 2(4). As a result, some countries (e.g. France) have noted that credit providers are encouraging consumers to turn to types of products that are slightly less controlled. 240

Zero-interest rate loans (i.e. loans with an interest rate of 0%) are commonly used in the EU, especially when financing the purchase of certain products, such as electronic devices. These loans are very often concluded via retailers, who act either as credit providers or credit intermediaries 241 . They may fall outside of the scope of the Directive 242  , and even if they may appear to be very advantageous credit products, they have the potential to be detrimental to the consumer. This is because despite the lack of interest, they generally foresee very high fees for late or missed payments, conditions of which the consumer is often unaware 243 . For this reason, some countries (e.g. Germany) have decided to apply some Directive provisions (i.e. right of withdrawal) to all consumer credit, irrespective of whether an interest rate is charged 244 .

Leasing agreements have seen rapid growth in the EU in recent years. The Directive only covers leasing agreements in so far as these oblige the consumer to acquire the good(s) upon expiration of the contract, which means that most of the leasing agreements concluded are not bound by Directive obligations. Consumers entering into leasing agreements may therefore be exposed to risks that could be addressed if the Directive was extended to these agreements. One consumer organisation in France, for instance, noted that consumers often lack sufficient information to make an informed decision 245 .

In relation to credit agreements for which the consumer is requested to deposit an item as security and where the liability of the consumer is strictly limited to that pledged item i.e. credit agreements with pawnshops, one consumer association pointed out that they should be bound by information requirements, as in many cases the fees applied are very high.

Various articles of the Directive provide for regulatory choices that allow Member States to make specific exclusions to the Directive. Member States’ use of regulatory choices varies significantly: all of them have made use of the one in Article 10(1), many of the one in Article 2(6) and 16(4)(a) and less than a half having made use of the others in Article 2(5), Article 4(1) and 4(2)(c), Article 6, Article 10(5), Article 14(2) and Article 16(4)(b) 246 .

In terms of definitions, Article 3 is generally considered to be effective and successful by all stakeholders 247 . Clarifications have been suggested, particularly to ensure that the Directive covers the new market players that have emerged with the increase in digitalisation (e.g. peer-to-peer lending 248 ). Aside from the risks 249 and potential to be detrimental to the consumer, the uncertainty as to whether these platforms are bound by the same rules as traditional credit providers, and the differences in Member States’ regulation, appears to be one of the key obstacles to ensuring a level-playing field for all credit providers, regardless of their nature.

Peer-to-peer lending 250 is not included in the list of exemptions in Article 2(2) of the Directive and is thus not explicitly excluded from its scope of application. However, there is little clarity (either in the literature or among the stakeholders) on whether it is covered by the Directive. This is because the Directive has defined ‘creditor’ as ‘a person who grants or promises to grant credit in the course of his trade, business or profession’ (Article 3(b) of the Directive). Given that the lenders in peer-to-peer lending are usually private individuals, many stakeholders consider them to fall outside the scope of the Directive, an argument that is also reflected in recent studies. In some countries (e.g. Denmark), the national legislator has explicitly placed private lenders under the obligations of consumer credit 251 . However, whether it would fall inside the scope would also depend on the potential role of the P2P platform.

Efficiency

Efficiency considers the relationship between the resources used by an intervention and the changes generated by the intervention.

EQ8 – What are the costs and benefits (including any reduction in consumer detriment) associated with the Directive and what are they influenced by? Can they be considered proportionate?

Quantification 253
Costs associated with the Directive encompass direct compliance costs (including administrative burden)  254 and consumer hassle costs. Indirect costs include reduction in available credit (costs passed on to the consumer), lower consumer spending and an associated reduction in GDP. The benefits can be direct, for example higher levels of consumer protection (and lower consumer detriment), development of the single market through cross-border activity and increased level playing field, and associated welfare gains and increased consumer choice. Indirect benefits include consumer awareness and behaviour, and improved consumer trust in banks regarding their loans, credit and credit cards, which has risen steadily since the 2010.

Overall the evaluation finds that benefits outweigh the costs of applying the Directive, as shown below, though the results reported should be treated with caution. Full details of the quantification approach are shown in Annex 3. 

For public administration, initial set-up costs for the Directive are estimated to have been up to EUR 6 million for the EU-28 in transposing EU legislation in national law, and recurrent costs at around EUR 300,000 per year for the EU-28, mostly in monitoring compliance and enforcement costs (sweeps, investigations).

For the industry, calculated on the basis of the roughly 7,400 banks in the EU in 2010 (as opposed to 5,100 in 2018), set-up costs included: familiarisation with the Directive; adapting IT systems for pre-contractual and Standardised European Consumer Credit Information (SECCI) requirements, creditworthiness assessment (CWA) and Annual Percentage Rate of Charge (APR); internal communications and staff training on advertisement, pre-contractual information and APR; updating the website and adapting contractual documentation. These are estimated to be in the order of EUR 340 million in the period 2008/2010 or EUR 46,000 on average per bank. Recurring costs are estimated to be between EUR 160 and 200 million per year for additional costs 255 in complying with advertisement requirements, for staff to provide pre-contractual information and SECCI forms and the APR, and carrying out CWAs. While there are also other industry players, including non-banks, credit intermediaries and those involved in advertising, it is not possible to estimate costs, on the basis of the information available, for these stakeholders. Their approximate number is not known.

Benefits in terms of a reduction in consumer detriment since 2008 are estimated at EUR 2.6 billion, of which EUR 1.55 billion in reduced financial detriment and EUR 1.05 billion in reduced time losses due to the Directive. The annual reduction of consumer personal detriment is equal to the consumer detriment in each year minus the consumer detriment in the baseline year (2010). The total reduction of the consumer personal detriment is the net present value of all the annual reductions of consumer personal detriment in the period 2011-2018. The annual consumer personal detriment is calculated by multiplying the number of problems experienced by consumers with credits in that year (obtained based on data from the Consumer Market Scoreboards) by a) the post-redress financial costs (i.e., magnitude of a problem) experienced by a consumer due to having had one problem with his/her credits and b) the monetised time losses that the consumer had in order to try to solve one problem (and or get redress)  256 .

The attribution to the Directive is tentatively estimated at between 20 and 25%, though it is important to point out that there is no data as such that enable an assessment of attribution. Please note this is based on expert judgement and reasoning of other factors involved 257 . Other factors influencing a reduction in consumer detriment include the development of the credit sector itself, more stringent legislation in certain Member States, a possibly uptake in overall sector compliance due to familiarity with the Directive, and increases in consumer awareness over time, as well as the impacts of other legislation and other factors not taken into account.

Figure 8 - Overview of estimated direct costs (PA and industry) and benefits in millions of euro for the period 2010-2018 (2010 prices).

Source: ICF elaboration on existing data and assumptions (for more details see Annex 7 of the study supporting the evaluation).

This suggests that developments in the market, EU and national level legislation, and other factors came together to substantially reduce consumer detriment. This figure has risen from 2014 onwards, showing increased detriment reductions in later years. A share of consumer detriment savings are due to developments in the credit market (more competition, lower prices), with some part attributable to the Directive, although most related to external factors (such as lower interest rates in the current economic climate). Other developments include national practices and policies, such as changes in national legislation and their application, and enforcement and monitoring.

The benefits to consumers of the Directive can also be measured by looking at consumer trust levels. Consumer trust 258 in banks regarding their loans, credit and credit cards has risen steadily since the 2010 baseline, from 6.2 to 7 on a scale from 0 to 10. While this figure cannot be directly linked to the Directive itself as it is also influenced by the economic upturn after the financial crisis from 2007-2008 (and the effects in the years thereafter) and wider trends in satisfaction, gradual increases in trust levels do point to overall satisfaction of consumers with their loans to which the Directive will have contributed (as with detriment).

The share 259 of consumers affected by consumer credit-related issues is expected to be substantially lower than before the entry into force of the Directive 260 . Not all of the problems that consumers are facing could be addressed through the Directive, however. Some are related to consumer awareness, national application and enforcement of legislation, and new market developments, and are beyond the ability of the Directive to be addressed directly.

There is further potential for improving the efficiency of the Directive by solving some compliance issues through better enforcement. The number of consumers negatively affected by issues linked to the respect to the right of withdrawal is comparatively small. The rate is higher for the right of early repayment, although still relatively insignificant as a share of all loans and compared to other areas. In the area of pre-contractual information, many more consumers are affected by imperfect information in respect of the APR and the SECCI form, although not all of the consumers impacted will have suffered specific problems or detriment as a result. For the CWA, the number of consumers affected by creditors not having asked for their ability to pay is substantial. There are many other problems, however, that could not be assessed, such as consumers affected by incorrectly having been granted a loan (and possibly indebting themselves) or where procedures were not followed correctly, though such estimates could be made. 25 million consumers are estimated to be affected because of issues with revolving credit and as many because of cross-selling practices. No reliable estimates could be made in regards to cross-border detriment as there is no comprehensive data on how many consumers could not obtain a loan even if they wished to do so. However, the evaluation’s mystery shopping exercise showed that there were obstacles in all cases where cross-border shopping for consumer credit was attempted. While representing anecdotal evidence only, it is nonetheless reasonable to assume that the practical obstacles to cross-border shopping would affect many consumers. According to Eurobarometer 443 less than 0.5% (3 million consumers) have purchased a personal loan in another Member States and that contrasts with 29% who looked for one (17 million consumers). It means that up to 14 million consumers are impacted by the impossibility to obtain a loan from another Member State. For many there were personal reasons not to proceed, but a subset will be due to the inability to do so. There are also cases of consumers who did not look for cross-border loans because the conditions were not right. Overall, the evaluation therefore estimates that the number of consumers affected by a sub-optimally functioning cross-border market is substantial. Furthermore, with increasing digitalisation it can be assumed that more and more consumers will look for cross-border credit.

Figure 9 - Estimated number of consumers potentially negatively affected per Directive provision/area, in millions of consumers for the year 2018 (range).

Source: ICF elaboration (for more details see Annex 7 of the study supporting the evaluation).

Views from stakeholders

Numerous consumers generally agreed that costs generated by the Directive are proportionate to the benefits, a view shared by the national authorities and consumer organisations consulted. The results from the Open Public Consultation also revealed that 66% of respondents considered benefits to outweigh the costs, overall. Dissenting views mostly came from industry representatives, as half of them (54%) pointed to the fact that the implementation of the Directive implied additional costs that were not matched by its benefits. However, as the evaluation also finds that the regulatory landscape is fragmented due to Member States going beyond the Directive, differences in enforcement levels and specific national contextual factors influencing demand and supply, these statements require nuance. Indeed, stakeholders commented on the implementation of the national legislation and not the Directive as such. The extent to which the costs of implementation can be attributed to the Directive itself cannot therefore be reliably estimated.

Over half of the respondents to the Open Public Consultation considered the benefits to outweigh costs, and a quarter argued the opposite, with the remainder being unsure. Almost one in six representative of creditors considered benefits not to be proportionate to its costs. Industry stakeholders noted, in particular, administrative burden and the compliance costs of elements such as information requirements, the right of withdrawal, the right of early repayment and CWA. At the same time, half of the respondents to the survey of creditors did not have an opinion on whether costs outweigh the benefits of the Directive. This evaluation estimates that there were initial start-up costs for businesses but that ongoing costs do not exceed benefits to creditors in view of the increase in the number of loans, and the volume of outstanding loans.

Advertisement requirements were argued to be very costly (to the extent that some credit providers have stopped advertising on certain channels) and not efficient by industry representatives (see EQ9).

Overall, in spite of claiming that the Directive is imposing a heavy burden on them, creditors failed to substantiate the costs incurred for complying with the Directive and to disentangle them from those stemming from national rules going beyond the Directive, casting doubts on their magnitude.

EQ9 – To what extent are the provisions of the Directive cost-effective? Are there any provisions particularly hampering the maximisation of the benefits?

Overall, the evaluation concludes that the provisions of the Directive are largely cost-effective, although data limitations (see EQ8) warrant a cautious approach.

While provisions such as the right of withdrawal and right to early repayment, as well as provision of the Annual Percentage Rate of Charge (APR) and Standardised European Consumer Credit Information (SECCI), hinder the maximisation of benefits to some extent, given that some consumers are still affected by problems in exercising their rights, this seems to be due to enforcement issues rather than the Directive itself.

Two thirds of industry representatives indicated that certain provisions are particularly costly or burdensome, with the obligations stemming from providing pre-contractual information most often mentioned as being burdensome and cost-ineffective especially in view of their length and perceived inadequacy in digital contexts. Member States’ representatives overwhelmingly did not consider costs to be particularly problematic, though one Member State authority pointed to current requirements in pre-contractual information and advertisement to be too prescriptive and to the Directive lacking in flexibility. Consumers associations considered provisions to be generally cost-effective, though one argued that current pre-contractual requirements are too complex for consumers and thereby cost-ineffective.

An area which is not considered particularly cost-effective is advertising. Several industry stakeholders publicly pointed to the cost of advertisement 261 , 262 . This seems less of a problem linked to the application of existing rules at the point-of-sale, on websites of credit intermediaries or directly on websites of the creditor, but rather for specific contexts such as radio and possibly TV. For mobile devices and in social media contexts current rules are also contested by some industry representatives. This evaluation estimates the costs to industry derived from continued compliance with advertisement requirements at several thousand of euros a year per bank and while there are no data for other channels, the joint cost to industry would seem to be considerable.

The issue, however, lies not only in the burden and cost itself, but rather in the fact that for some channels – such as radio – credit information messages (representative examples, warning) have an impact on a tiny fraction of consumers, rendering them both possibly redundant and, therefore, cost-ineffective (see further explanations below under EQ10). At the same time, a 2019 Commission study pointed out that the provision of the representative example in advertising does help consumers in making better choices in the online environment. Whether that ultimately makes them sufficiently cost-effective cannot be ascertained.

It is estimated that benefits to consumers could be larger for credit products currently either partially regulated or outside the Directive’s scope, and that affect a potentially significant number of people, such as shown in EQ7 and EQ8. However, as pointed out throughout this report, inclusion in scope is not the only driver of a reduction in consumer detriment as this would also depend on current national legislation and levels of enforcement.

EQ10 – Is there scope for simplification and burden reduction? What provisions or areas of the Directive could be simplified to reduce the burden on stakeholders without undermining the effectiveness of the Directive?

Opinions on whether the Directive could - or should - be simplified were divided among consumer organisations. Some argued that simplification of legislation (particularly the provision of information) would enable better consumer understanding of the information, as well as their rights. However, others linked simplification to a potential narrowing of consumer protection standards.

A considerable share of industry stakeholders pointed to administrative burden and compliance costs as a recurring issue (even if they could not qualify that burden with relevant data). On the other hand, several industry representatives highlighted that any change to the Directive – even a reduction in administrative burden – also implies new compliance costs, thereby partially undoing some of the intended gains. To strike a better balance between costs and benefits, the creditors surveyed suggested simplifying the rules on the provision of information and minimising legal disparities by ensuring a higher degree of harmonisation. As explained above, pre-contractual information (including the Standardised European Consumer Credit Information) and advertisement information are considered by industry to imply significant costs and are argued to have sub-optimal effects in their main objective (informing consumers). At the same time, having been in place for around a decade, the initial costs for providing pre-contractual information are now sunk costs, and there are few indications of substantial ongoing compliance costs (with existing systems increasingly automated). In the area of advertising, some industry representatives considered there to be substantial continuous costs and pointed to scope for burden reduction 264 .

A majority of Open Public Consultation respondents argued that there are areas in the Directive where there is room either for simplification or reduction of costs, but they did not provide detailed explanations. Most of the national authorities interviewed believe that the Directive has not created any unnecessary burden and that there is no need for further simplification of the legislation. However, a quarter of them held the opposite view, arguing that the information duties impose a burden on both creditors, who have to prepare and provide the information, and consumers, who are expected to read and fully understand the documents.

The potential for burden reduction identified by some stakeholders should, however, not lead to a reduction in the protection of consumers.

Coherence

The evaluation of coherence involves looking at how well or not different actions –both at EU and national level- work together.

EQ11 - To what extent is the Directive internally coherent?

The Directive provisions work well together and have contributed to achieve the objective of improving consumer protection: these include the obligation to provide pre-contractual information, information to be included in advertising, the obligation to assess consumers’ creditworthiness, as well as the possibility to withdraw from a credit agreement and/or to repay the credit earlier than agreed at contractual stage.

On the other hand, the scope of the Directive and its exemptions contradict somehow the objective of ensuring consumer protection, as they exclude several consumer credit products frequently used by consumers (see EQ7). As explained in EQ4, the provisions of the Directive are somehow insufficient to fully protect consumers from irresponsible lending practices and inappropriate decisions.

There is also a degree of incoherence when it comes to the second objective of the Directive, i.e. fostering the EU internal market for consumer credit, as the objective itself cannot be (fully) expected to be address by the Directive. The vague wording of certain provisions (e.g. Article 8 on creditworthiness assessment) has led to their diverse application across Member States.

In addition, the Directive does not, and is mostly not set up to, address certain barriers that have been identified by stakeholders and which prevent the creation of an internal market for consumer credit (see EQ1, EQ2 and EQ5). These barriers include consumer preferences, language and cultural barriers, conduct of business rules, authorisation and supervisory requirements, uncertainty over enforcement etc.

It must also be noted that the discrepancy between the general objectives and the specific provisions of the Directive is partly attributable to the negotiation process between the co-legislators, whereby several elements of the Commission’s proposal were not included in the final text, which included, for instance, more specific provisions on responsible lending or credit databases.

EQ12 – To what extent is the Directive coherent with other national-level consumer policy and legislation (including legislation going beyond the scope of the Directive, relevant for consumer credit)?

Most of the national transposing measures are largely coherent with the Directive. A few Member States, however, transposed several EU Directives in a single piece of legislation, which has reduced clarity in some cases. Only Cyprus and Greece did not adopt measures beyond the requirements of the Directive, instead opting for a literal transposition of the Directive.

Overall, 40% of the respondents to the Open Public Consultation considered there to be a degree of incoherence of the Directive with national-level legislation. This evaluation finds that, on the basis of research conducted, this mainly relates to specific choices made upon transposition or much after its implementation.

Going beyond the provisions of the Directive when transposing is ultimately a choice of the national legislators, that can make use of different regulatory choices where there are provisions which are not harmonised in the Directive.

Moreover, several Member States have legislated on areas outside the harmonized scope of the Directive introducing requirements on issues not explicitly covered - although very much linked to - some of the Directive’s provisions (by way of product governance rules and interest caps 265 , 266 to limit the cost of short-term high-cost loans or revolving credit, for instance).

Indeed, several Member States used the opportunity to introduce more stringent rules when transposing the provisions of the Directive into their national laws. Market developments (such as the growing use of pay-day loans) have also forced Member States to take action in more recent years. As explained in EQ1 and EQ2, this situation has contributed to a legal fragmentation within the internal market.

For instance, and as seen in EQ4, Member States have implemented the creditworthiness assessment (CWA) obligation in different ways, often specifying how the assessment is to be conducted and the documents that must be consulted.

In addition, some Member States’ transposition of the Directive may create confusion and potentially lead to obstacles in ensuring the free movement of credit offers. One such example is the perpetual right to withdrawal in Germany and Slovakia 267 (see EQ6). Moreover, several Member States transposed the Directive and the Mortgage Credit Directive (MCD) into a single Consumer Code, or broadened the scope of application of MCD provisions on consumer protection. This, in certain instances, led to a lack of harmonised framework and to some inconsistencies and overlap in the transposition of EU credit legislation 268 , which has come under the scrutiny of the Court of Justice of the EU 269 . 

Some of the national transpositions may thus be seen as incoherent with the Directive, as they impede the creation of a cross-border credit market in the EU to a certain extent, mainly due to a lack of harmonisation of the Directive across Member States.

EQ13 – To what extent is the Directive coherent and complementary with other relevant EU-level legislation?

Several EU-level legislative instruments touch upon aspects that are covered by the Directive or are potentially relevant for the provision of consumer credit. Some were adopted prior to the Directive (e.g. the Distance Marketing of Financial Services Directive (2002/65/EC, ‘DMFSD’), the Unfair Commercial Practices Directive (2005/29/EC, ‘UCPD’), the Unfair Contract Terms Directive (93/13/EEC, ‘UCTD’) 270 ), while others entered into force after 2008 (e.g. the Mortgage Credit Directive (2014/17/EU, ‘MCD’), the Anti-Money Laundering Directive ((EU) 2018/843, ‘AMLD’) and the revised Payment Services Directive ((EU) 2015/2366, ‘PSD2’)).

A majority of the respondents to the Open Public Consultation considered the Directive to be consistent with other relevant legislation at EU-level. Between 57% and 65% of respondents thought this to be the case for the MCD, UCPD, PSD2, General Data Protection Regulation (GDPR), UCTD and DMFSD.

The most common examples of incoherence mentioned by Member State authorities concerned the MCD and its requirements for responsible lending and creditworthiness assessments (CWAs), the reflection period and right of withdrawal, its definitions, and the level of harmonisation. In fact, while the MCD – adopted in 2014- differs in scope to the Directive 271 , both Directives aim to provide a harmonised framework in relation to certain aspects of credit agreements, most of which are covered in both pieces of legislation. The MCD, which on average covers higher value and more legally complex credit agreements, provides a higher level of consumer protection against over-indebtedness and irresponsible lending. 272 The tools provided by the Consumer Credit Directive to promote responsible lending and avoid over-indebtedness (e.g. CWA and information duties) rely on the assumption that consumers will act rationally if they are provided with the correct information (see EQ15). By contrast, the MCD has transferred a significant part of the duty to ensure that consumers are borrowing responsibly onto credit providers notably by ensuring that credit can only be granted where the results of CWA indicate the consumer ability to repay the loan. The additional obligations in respect of explanations, information (in particular in case the credit application is rejected), advice and CWA (e.g definition of amount and categories of data to be used) are intended to ensure that consumers are not sold products that are unsuitable for them. The introduction of conduct of business rules governing the design, manufacturing and sale of credit products also plays a key role in protecting consumers against over-indebtedness, complemented by the obligation for Member States to promote financial education.

Despite the different approach to responsible lending, apart from Member States authorities, very few stakeholders raised concerns about coherence between the Directive and the MCD 273 . This may be because the obligations imposed by the two Directives govern different types of credit, thus do not hinder credit providers in complying with both. However, better alignment of the provisions could improve the implementation of both Directives, as it would improve legal clarity for Member States and credit providers and ensure a consistent approach to protection of consumers against over-indebtedness 274 . This was noted by several stakeholders representing consumer associations, industry representatives and national authorities, who identified room for greater consistency between both texts. National authorities were particularly keen to see the Directive provisions on CWA aligned with those in the MCD 275 . Several also suggested introducing other MCD provisions to ensure more coherence, such as the conduct of business rules or the prohibition of tying practices 276 , 277 . Some stakeholders referred to the need to achieve better alignment of the definitions included in Article 3 of the Directive and Article 4 of the MCD and the terms used throughout the texts. An example is the definition of the APRC 278 , which in the MCD includes a reference to the costs that need to be included and the present value of all future or existing commitments 279 .

No major inconsistencies were identified between the Directive and other relevant EU-level legislation, although room for further alignment or synergies were identified in several instances. This is in line with the feedback from key stakeholders, most of whom believed that the Directive was coherent with other EU-level legislation, including the PSD2, the UCPD, the GDPR and the DMFSD 280 , while other key stakeholders pointed to the e-Privacy Directive, the e-Commerce Directive, the Benchmark Regulation, the Insurance Distribution Directive (IDD) and the AMLD 281 . Please see the relevant Annex for more details.

EQ14 - To what extent are the provisions of the Directive and their implementation at national level coherent with national and EU-level data protection legislation?

There are no inconsistencies between the Directive and the the General Data Protection Regulation (GDPR) as such. Creditworthiness assessment (CWA) must be carried out in full compliance with the GDPR, including the processing of data obtained from credit databases. Better alignment could be ensured by explicitly indicating that credit providers are bound by GDPR obligations and relevant national data protection legislation when collecting, sharing and storing consumer data. 282 A specification of the categories of data that can be used for CWA along the lines of the Mortgage Credit Directive (MCD), together with a reference, in particular, to the data minimisation principle would improve legal certainty.

The vast majority of stakeholders consulted for this evaluation argued that the application of the Directive is done in full compliance with EU personal data protection laws (mostly about the use of credit databases that provide data to assess the credit-worthiness of consumers). However, a number of risks were highlighted by a few stakeholders. The European Consumer Organisation BEUC 283 and the Financial Services User Group (FSUG), 284 for instance, have expressed concerns about the new types of personal data (e.g. digital footprints or social network data) collected online (notably by new types of providers such as certain fintech providing online credit or crowdfunding platforms 285 ) for verifying the creditworthiness of consumers and the impact this could have on vulnerable consumers in particular and their access to credit. These stakeholders argue that limited or no rigorous scrutiny of consumers’ ability to pay (creditworthiness) can in fact lead to higher risks of default and indebtedness, with vulnerable consumers accessing loans they cannot repay.

While only 13% of respondents to the Open Public Consultation reported that the GDPR is incoherent with the Directive, there is uncertainty as to the practical implications of requirements on the identification, collection, sharing and use of data of consumers for the purposes of the CWA. Recent work by national data protection authorities is thus helpful in providing guidance on how the GDPR impacts the functioning of the Directive provisions 286 .

GDPR clarifies that data subjects have the right to ask for human intervention in case of decisions based solely on automated processing which significantly affect them e.g. automatic refusal of an online credit application. In addition, data subjects have the right, in case of automated decision-making, including profiling, to receive meaningful information about the logic involved, as well as the significance and the envisaged consequences of such processing. However, the fact that the Directive does not specify which categories of data can be used – or not- nor their amount in the CWA process is a gap that the GDPR cannot fill on its own effectively, particularly considering the objective of the CWA obligation to ensure consumers are provided with loans that are appropriate to their financial situation (see also EQ15 on the relevance of the Directive provisions in light of digitalisation).

Beyond CWA, compliance with GDPR is also key when it comes to advertising practices, in case of prices determined in an automated manner 287 or lack of information on the pricing structure 288 . These practices have significant consequences for consumers, as they limit their access to certain financial services. Consumers, according to the GDPR, can also prevent the processing of their personal data for marketing purposes at any time, by withdrawing any consent previously provided, or objecting to the processing of their personal data for marketing purposes.

Relevance

Relevance looks at the relationship between the needs and problems in society and the objectives of the intervention and hence touches on aspects of design.

EQ15 - Are the objectives of the Directive still relevant? Does the Directive address current and anticipated future needs and challenges (e.g. market developments, consumer behaviour and needs), including those of consumers and providers?

Considering the developments explained in section 3 and the above analysis, while the objectives of the Directive remain relevant, certain shortcomings prevent it from addressing the current and anticipated future needs and challenges of consumers and credit providers, particularly in relation to issues linked to digitalisation and responsible lending.

The Directive was intended to establish a well-functioning internal market in the field of consumer credit and to ensure a high level of consumer protection. Despite the fact that both these objectives are also pursued, directly or indirectly, by other relevant EU-level legislation (e.g. Mortgage Credit Directive (MCD)), the evidence gathered suggests that the Directive is still considered relevant, as it provides a specialised framework that takes account of the functioning and specific issues related to consumer credit.

More than 10 years later, however, needs have evolved, especially considering the changes brought by digitalisation and the challenges the EU is facing to fully engage in the transition towards a green economy including the uptake of energy efficient loans 289 .

Objective 1: Ensuring a high level of consumer protection

The relevance of this objective is reflected in the way that most Member States have transposed and implemented the Directive, in most cases going beyond the requirements laid down by the Directive to ensure better consumer protection 290 . The extent to which the provisions of the Directive are aligned with the needs of consumers in practice is subject to debate. Several provisions of the Directive proved particularly relevant to address issues that consumers faced a decade ago. The extension of the right of withdrawal as well as the harmonisation and establishment of a common formula to calculate the Annual Percentage Rate of Charge (APR) all proved useful for consumers 291 .

Ten years on, the Directive covers some – but not all - of the current consumer needs 292 . The last decade has seen important changes in consumer behaviour that are not reflected in the provisions of the Directive. Consumers’ decision-making processes in deciding to take up credit have changed as a result of digitalisation and the transformation of consumption habits. Over 90% of the Open Public Consultation respondents agreed that digitalisation has changed the credit market over the past ten years. For instance, consumers are slightly less concerned with the location of the provider, instead getting used to smoother and faster processes, also as a result of the industry’s push for quicker processes. The approach to consumer protection adopted by the Directive is anchored in the ‘information paradigm’, whereby the ‘average consumer’ is assumed to make good decisions based on the information received 293 . This is a somewhat outdated paradigm, however 294 .

Whilst the general feedback collected in the Open Public Consultation show that a large majority of stakeholders consider the Directive provisions relating to consumer information as relevant, the details contained in their contributions as well as the evidence collected as part of this study show a more nuanced landscape. Indeed, the provisions of the Directive are not entirely adapted to current consumer behaviour and the way information is displayed online as the Directive does not specify how information should be presented to consumers specifically in a digital environment where different dynamics (in terms of speed of information and consumer experience) apply. Indeed, consumers are unlikely to read and process large amounts of information (which only in part derives from the Directive and, on the contrary, is sometimes used to exploit behavioural biases), and often sign without understanding the conditions of the agreement, especially when undertaking credit online 295 .

Another shortcoming relates to the Directive’s limited coverage of responsible lending. While the early versions of the Directive proposed by the Commission spelled out the objective of avoiding consumers’ over-indebtedness and included specific obligations seeking to ensure responsible lending 296 , the final version after negotiations did not establish such a clear duty 297 . Some of the Directive tools -especially the obligation to perform a creditworthiness assessment (CWA) and to provide adequate and comprehensive information- are underdeveloped to effectively ensure responsible lending and avoid over-indebtedness.

From the perspective of credit providers, responsible lending requires them to design credit products responsibly and to establish business practices that ensure that these products are sold to consumers who can reasonably fulfil their obligations. The Directive fails to address product design issues, with many of the problematic products falling outside the scope of the Directive (see EQ16). From a consumer perspective, responsible lending focuses on their ability to understand their options, the conditions applicable, and the potential risks. Even where they are covered, the Directive does not contain any provision to mitigate their risks. Responsible lending concerns were highlighted by 20% of consumer associations, while also a few industry representatives argued that responsible lending requirements can reduce consumer detriment and costs for credit providers. As discussed previously, some Member States have adopted specific provisions to address problematic lending practices.

Several irresponsible lending practices have been observed in the consumer credit market. Chief among these are the cross-selling of products like insurance policies (in many cases to unsuitable consumers), the targeting of vulnerable consumers by promoting easy and quick access to some of the most potentially dangerous credit products (e.g. short-term high-cost credit) and failing to support consumers who are struggling to repay on time. A number of shortcomings prevent the Directive from tackling these issues:

·the Directive does not specify explicitely that CWAs should be borrower-focused (i.e. focused on whether this can be done without incurring substantial financial harm), as confirmed by the case law of the Court of Justice of the EU ;

·it does not establish the consequences of a negative CWA 298 ;

·it does not impose any restrictions on cross-selling;

·it does not require Member States to provide for a general obligation on creditors to offer consumers the most suitable credit;

·it does not impose on credit providers an explicit duty to recommend suitable credit agreements to consumers , but only an obligation for Member States to ensure that creditors and intermediaries provide adequate explanations to consumers. Moreover, it does include standards on advisory services;

·it does not establish any obligation of fair treatment of consumers at risk of default or that have defaulted.

Some Member States have gone beyond the requirements of the Directive to mitigate these risks. Measures taken include establishing further requirements in advertising, e.g. obliging credit providers to include messages warning consumers that borrowing money costs money. 299  With respect to standard information requirements to be included in advertising, most Member States went beyond the requirements laid down by the Directive to ensure better consumer protection. 300

The stakeholder consultation reveals a perceived need – particularly among consumer associations and national authorities - for the Directive to further promote responsible lending and increase consumer protection against over-indebtedness. Other than the adaptation of information requirements, there were no suggestions for specific supporting measures apart from a reference to the need of further promoting financial education (both among credit providers’ employees and consumers) 301 . However, the Financial Services User Group (FSUG) recently put forward several suggestions 302 , including the introduction of conduct of business rules, rules on product oversight 303 and EU-level interest rate caps 304 .

Finally, some consumer associations highlighted that better protection of consumers could be achieved by strengthening enforcement of credit providers’ obligations 305 . A small number of stakeholders argued that the Directive could potentially contribute to better enforcement by harmonising sanctions across the EU 306 .

The Directive does not address the issue of financing sustainable consumption. However, the Commission has recently launched an EU Green Deal and the issue is likely to become relevant for consumer credit as well in the near future  307 .

Objective 2: Facilitating the emergence of a well-functioning internal market

Stakeholders across all groups – especially industry representatives and national authorities - acknowledge the relevance of a legal framework that allows a level-playing field for all credit providers (regardless of their nature and location) in ensuring the functioning of the internal market. Regulatory fragmentation raises costs for providers who want to sell on another market, creates an unlevel playing field for creditors, and reduces the offer available for consumers, hampering the achievement of a well functioning internal market (see EQ1).

Neither consumers nor credit providers see achieving an effective cross-border market for consumer credit as the most pressing need. However, while cross-border credit is insignificant as a whole 308 , still nearly 30% of consumers in this evaluation’s survey indicated to have looked for loans in other countries, showing there to be a demand potential 309 . Although several obstacles play a role in this, the low levels of demand are also explained by a lack of interest, as consumers are satisfied with the national offer (especially in large economies) or prefer to purchase products in their own country 310 . From the perspective of the offer, the low demand for cross-border credit and the legal fragmentation result in a lack of incentives for credit providers, especially traditional providers 311 - which usually set up a local branch and provide credit from there. There are indications, however, that the cross-border market may develop in the future, due to the digitalisation of business processes and changes in consumer behaviour, raising new issues for consumers and credit providers 312 . Against this background, achieving a well-functioning internal market is likely to become increasingly relevant.

The adoption of the Directive led to a certain degree of legal harmonisation (as discussed in EQ1), but did not achieve the intended degree of uniformity for all rules across the EU. Similarly, credit providers believe that the new framework did not significantly improve legal clarity. The limited impact of the Directive may be an indication that the provisions of the Directive were not entirely in line with the objectives pursued by the Directive (see EQ11).A decade after the adoption of the Directive, important shortcomings have been identified that suggest that the Directive is ill-equipped to address several current and future needs 313 .

Digitalisation has triggered the emergence of new players (e.g. fintech companies such as peer-to-peer lending and online banks). As discussed under EQ16, it is unclear whether these new players are bound by the Directive obligations, which in turn raises questions in terms of level-playing field with traditional providers.

Digitalisation has also transformed the way that credit providers communicate and engage with consumers. It has changed the way in which consumer data are processed, both for marketing and creditworthiness assessment (CWA) purposes. Business processes have also been significantly impacted as a majority of consumer credit is now sold using a combination of online and offline processes, and credit providers are increasingly using – in the absence of detailed requirements - alternative information in CWA (see EQ4) as well as automated decision-making processes.

The inability of the Directive to fully adapt to these trends is highlighted as one of the main issues limiting its relevance today 314 . This limitation was noted by all stakeholder groups consulted for this study, especially industry representatives and national authorities 315 . However, these transformations show that pursuing the objective of facilitating the emergence of a well-functioning internal market remains relevant, not only because of the need to guarantee a level-playing field between creditors independently of their type or the practices they use, but also in the light of increased digitalisation which is likely to foster cross-border market.

EQ16 - How relevant and adapted are the scope, thresholds and definitions in the Directive to the current market situation?

While three quarters of respondents to the Open Public Consultation argued that the scope of Directive is relevant, the minimum and maximum thresholds of Article 2(2)(c) are generally perceived as only partially relevant, as they establish an artificial distinction between credit, based on the amount rather than the nature of the credit. Only 10% of consumer associations and 20% of Member State authorities did consider the scope to be adequate, as opposed to half of industry representatives.

As explained under EQ7, the EUR 200 minimum threshold is particularly problematic, as it prevents the Directive from tackling some of the issues linked to high-cost and revolving credit. These types of credit may result in high levels of consumer detriment, as they tend to be very expensive and are typically used by vulnerable consumers with limited access to other types of consumer credit, often leading to over-indebtedness. In relation to credits above EUR 75,000 threshold, it can be argued that there is a gap in legislation, as only those for the purposes of renovating an immovable property are covered by the Directive. However, as they are less common (in total numbers, not in total value), stakeholders have much less frequently pointed to the higher threshold as a potential problem.

The list of products exempted under Article 2(2), or of products only partially covered by the current Directive, also raises several concerns, as highlighted under EQ7. Four main products are perceived as particularly risky: zero-interest loans (they can have high penalties for running late for periodic instalments), overdraft facilities (they can be raised to higher ceilings without consumers being aware), leasing agreements (that do not impose an obligation to purchase the good in terms of the ability to exercise rights) and agreements with pawnshops (equally for exercising rights). Although the extent to which these credit products are used by consumers varies, some Member States nevertheless highlighted their increasing importance in the field of consumer credit and the need to minimise the risks for consumers.

Most of the Article 3 definitions remain relevant to the current market situation, with only a slight revision or clarification of the definition of ‘creditor’ and ‘credit intermediary’ suggested as necessary to ensure that the Directive covers the new players in the market since 2008. Stakeholders pay particular attention to this point because of the emergence of peer-to-peer lending (P2PL) 316 platforms, which pose risks for both lenders and borrowers. Although P2PL platforms are not one of the exemptions of Article 2(2), there is little clarity on whether they are covered by the Directive, thereby diminishing the relevance of the Directive and degree to which it is adapted to current trends. Lenders on such platforms are usually private individuals and it is somewhat unclear, in such case, if they fall strictly within the definition of ‘creditor’, as they may not necessarily provide credit ‘in the course of […] trade, business or profession’.

The uncertainty around the scope of application of the Directive has allowed some types of credit products to remain partially or not at all covered by the Directive, and has also resulted in a very fragmented legal framework across the EU and different degrees of consumer protection standards and enforcement rules (potentially creating incentives for regulatory arbitrage). As Member States are free to regulate credit agreements not covered by the Directive, they have opted to tackle their own most pressing issues in diverse ways.

Overall, a majority of stakeholders across all groups therefore argued that the scope of application of the Directive should be revised. Industry representatives pointed out that all consumer credit providers should be bound by the same rules (even if enforcement standards might currently be different for banks and non-banks 317 ), while national authorities and consumer organisations would like to see certain credit products brought within the scope of the Directive to enhance its overall effectiveness.

EU added value

EU added value looks for changes which it can reasonably be argued are due to the EU intervention over and above what could reasonably have been expected from national actions by Member States.

EQ17 - Where does the EU added value of the Directive lie? Would the benefits delivered by the Directive have been achieved in the absence of EU-level intervention?

Stakeholders agree that consumer credit - and consumer protection, in particular - benefit from EU-level action and a harmonised approach. 83% of the respondents to the European Economic and Social Committee survey found that the Directive had increased transparency and fairness in credit agreements between creditors and consumers. All stakeholder groups acknowledge the importance of a harmonised framework allowing for a level-playing field for all credit providers 318 . Between 88% and 93% of respondents to the Open Public Consultation considered all provisions to have added value at EU-level, with only creditworthiness assessment (CWA) somewhat a bit lower at 74% (probably because of the various ways it has been implemented at national level).

In order to meet the Directive’s objectives to guarantee a high level of consumer protection across borders and to facilitate the emergence of an internal market for consumer credit, the role of the EU in ensuring a even level of protection for consumers and a level-playing field for providers is key. Moreover, considering that the provision of cross-border credit is expected to increase with the developments linked to digitalisation, an EU framework will be all the more necessary. Overall, the findings of this study present a rather fragmented regulatory landscape across the EU, with some elements of the Directive more harmonised than others, which is an indication that the Directive has partially achieved its potential in terms of adding EU value. The Directive managed to create a level-playing field on certain provision, which is partially hampered by vast differences in application of the Directive, enforcement, and contextual differences in the demand and supply of the credit market. At the same time, key benefits of the Directive would likely have been only partially achieved – in their reach or in the number of Member States – in the absence of EU-level intervention.

As described above, specific benefits relate primarily to individual provisions, the Directive as a whole, or its wider effects. The benefits stemming from the Directive vary significantly between Member States, mostly based on whether relevant national predecessors existed to the Directive. Some of the provisions introduced by the Directive were entirely novel for some Member States and as such had a unique impact 319 . This points to clear added value of the Directive in ensuring certain consumer protection standards. As discussed in EQ1 and EQ2, the introduction of standardised formats such as the Standardised European Consumer Credit Information (SECCI) and the Annual Percentage Rate of Charge (APR) clearly has reduced fragmentation across the EU and minimised disparities in consumer protection between Member States. Similarly, the right of withdrawal and of early repayment help creating EU-wide minimum levels of consumer protection.

What remains unclear, however, is whether such provisions would have been developed by Member States in the absence of the Directive and thus whether the same result would have been achieved. While, in some Member States 320 , transposition of the Directive had little impact on the national framework regulating consumer protection 321 , making it difficult to establish whether the impact would otherwise have been delivered, in others the Directive definitely added value to the national framework 322 . In most cases, Member States have implemented significant changes to national legislation in order to transpose and implement the Directive. It could thus be assumed that the introduction of the Directive’s provisions had a positive impact on the national framework that may not otherwise have happened 323 . The introduction of the Directive also avoided fostering greater national disparity as some Member States refrained at the time from modifying their national legislation before the Directive adoption, which prevented the creation of much bigger differences than those preceding the adoption of the Directive. This in turn reduced the risk of regulatory arbitrage and of legal loopholes exploitation to achieve competitive advantages, while also diminishing further challenges to enforcement.

The evaluation finds that most Member States have gone beyond the requirements of the Directive and implemented additional measures at national level. These additional measures focus almost exclusively on raising consumer protection standards. This may be an indication that the Directive’s provisions alone were not entirely sufficient to protect consumers to a level required by those Member States, which decided to adopt stricter measures as part of the transposition. However, in certain cases, some Member States adopted additional measures much after 2008-2010 as a response to very particular issues 324 .

Regulatory fragmentation and national differences in consumer protection standards were identified as leading to distortions of competition among creditors in the EU and creating obstacles to the internal market before the introduction of the Directive 325 . These barriers have not been entirely eliminated with the entry into force of the Directive. However, many external factors (e.g. Member States going beyond the Directive and several credit-related aspects falling outside of the scope of the Directive) are responsible for this and therefore the Directive alone cannot reasonably have been expected to boost cross-border activity. While the added value of the Directive to facilitate the development of a more transparent and efficient credit market benefitting both businesses and consumers so far is clear, its current form runs the risk of diminishing in value as areas not foreseen at the time of its drafting become more prevalent. The added value of the Directive in its current form may thus decrease in the future given that it is not entirely adapted to market changes (changing consumption patterns, unfair lending, new market players etc – see EQ15) that are likely to intensify because of digitalisation.

EQ18 – What would be the most likely consequence of withdrawing the Directive? In the absence of EU-level action, to what extent would Member States have the ability or possibility to enact appropriate measures?

The lack of a harmonised framework may prove detrimental, especially as the market evolves. Fragmentation would increase as some Member States are likely to opt for further regulatory action while unequal levels of enforcement also raises the risks of regulatory arbitrage.

A withdrawal of the Directive could indeed result in Member States having different formulas for the calculation of the Annual Percentage Rate of Charge (APR) or requiring creditors to provide different types of pre-contractual information and advertisement and in various formats. Consolidated rights, such as the right of withdrawal and the right of early repayment, could be amended, making them subject to different timeframes in the Member States. Differences in the market, such as the prominence of short-term loans in a given Member State could lead to a different APR calculation methodology that is more favourable to certain types of credit. Creditworthiness assessments and the use of credit databases are another area where undoubtedly differences may widen. Member States could opt for different approaches on automatic credit scoring carried out by artificial intelligence. Equally, they may authorise creditors to use certain new forms of data which would currently not be considered appropriate or proportionate for creditworthiness assessments (CWAs).

Such changes at national level would not necessarily damage the interests of other Member States, though differences in standards could affect neighbouring countries. It would, however, most probably lead to greater differences in the levels of consumer protection across the EU than those visible today.

In terms of impacts on creditors, changes to the type and format of pre-contractual information, for example, or the information to be included in advertising, and the length of the right of withdrawal and caps on repayment charges would require costly and burdensome adaptations to business practices across Member States. This would also hamper the level-playing field between creditors.

As a result of the above, reduction in the harmonisation of the provisions governed by the Directive would invariably also have a negative impact on cross-border access to credit. Greater differences between Member States would lead to greater difficulties and costs for creditors to comply with the different regulations, possibly hindering the emergence of an internal market in consumer credit, at a moment when digitalisation could help overcome certain practical barriers in the provision of credit and as consumers appear increasingly interested in cross-border credit offers 326 .

6.Conclusions and lessons learned

The evaluation results will feed into the review of the Directive, which was included among the REFIT initatives of the Commission Work Programme 2020. Based on the outcome of the present evaluation, the review will assess potential options to ensure better consumer information, taking into account the impact of digitalisation, as well as strengthened consumer protection from irresponsible lending practices, particularly those spread online.

Effectiveness

The Directive’s objectives of ensuring a high level of consumer protection and facilitating the emergence of a well-functioning internal market have been partially achieved. The evaluation found a number of limitations and shortcomings. Although partly due to the Directive itself, these stem mainly from the practical application of the Directive in the Member States, its enforcement, aspects not covered by the Directive and the development of overall credit supply and demand.

As regards the first objective, the introduction of the Directive has enabled the development of a specific legal framework to protect consumers concluding a credit agreement, which is key to ensure consumer confidence. However, several Member States have introduced additional elements, probably because further measures were needed to address detrimental practices. Uneven consumer protection across the EU leads to fragmentation, different rights for consumers and unequal conditions for cross-border access to credit products. Even if currently limited (around 1% of all loans), cross-border credit activities already impact some EU consumers and are expected to increase thanks to digitalisation.

Concerning the second objective, there are two aspects to be considered. On the one hand, cross-border credit provision, whose small size can be mostly explained by a series of barriers, most of which relate to aspects beyond the provisions of the Directive, both on the supply and on the demand side (regulatory and market fragmentation, general consumer preferences, geographically-based discrimination through geo-blocking techniques…). However, certain barriers to cross-border credit provision are linked to the way some of the Directive provisions have been implemented by Member States (e.g. adding elements to their own consumer credit legislation, usually imposing additional requirements on creditors and affording greater protection to consumers). An increase in cross-border credit provision could foster competition and ultimately benefit consumer choice. On the other hand, ensuring a level-playing field between creditors by providing a harmonised framework. The Directive has played a positive role in achieving this, thanks to harmonisation of certain key aspects (Standardised European Consumer Credit Information, right of withdrawal, …) ensuring that providers have to comply with the same obligations across Member States. Hence, even though cross-border transactions remain very limited, the aim to achieve a better functioning internal market for consumer credit was partially met. Nonetheless, further reduced regulatory fragmentation would lead to exploitation of synergies and economies of scale in the internal market, lower costs for providers (and consequently for consumers) who want to sell on another market and increased offer.

Despite regulatory fragmentation, legal clarity has improved as the Directive has provided a higher degree of regulatory harmonisation (although not for all provisions). However, different approaches to enforcement (including sanctions as well as remedies available to consumers in case of lack of compliance) at national level resulted in different levels of consumer protection across the EU.

The effectiveness of the Directive’s provisions has been assessed taking into account market developments since its adoption, like the emergence of new providers, new products and new channels (i.e. digital tools). Current and future needs of consumers and credit providers could be addressed more effectively, particularly in relation to issues linked to digitalisation and irresponsible lending.

·Information disclosure: the effectiveness of both the provisions on advertising and pre-contractual information has been hindered by the way the required information is provided in online environment and on certain media, which can lead to information overload. The amount and complexity of the information provided in the Standardised European Consumer Credit Information reduces the form’s effectiveness, particularly on digital tools. As regards the provision on advertising 327 , evidence shows that its impact varies depending on the prominence it is given and the media used. How information is provided is key: information provided in a timely, clear and salient way, could improve consumer understanding.

·Annual Percentage Rate of Charge: it provides a coherent formula and a comprehensive comparison tool across all Member States. When correctly conveyed and understood, it helps consumers to choose the credit most appropriate to their needs.

·Creditworthiness assessment: Member State interpretations of the creditworthiness assessment provisions of the Directive vary, and this creates a diverse landscape as regards the requirements for such assessment, potentially hampering the provision of cross-border credit. Properly performed creditworthiness assessments are indispensable in protecting consumers from over-indebtedness, and poorly performed creditworthiness assessments are often identified for those types of credit that are most appealing to consumers with limited credit histories, such as short-term, high-cost loans. There are concerns about data protection, and particularly about transparency, relevance, proportionality and fairness, as regards the use of new techonologies and novel or alternative types of data. There are also concerns about granting of loans despite a negative creditworthiness assessment. These elements hinder the effectiveness of the provision, especially for more vulnerable consumers and in the light of the expected increase in the digitalisation of the consumer credit market. 

·Credit databases: they have been established in all Member States, although their nature (private or public), as well as the type and quality of the data they contain, varies between countries, with associated differences in how they function in practice. Along with these explicit limitations, the principle of reciprocity plays a significant role in the limitation of access to credit databases in a cross-border context, since the lack of standardisation in the data to be collected and reported limits the exchange of information between Member States. The Directive’s provision on access to credit databases has had limited impact on fostering the emergence of cross-border access to credit offers.

·Rights of withdrawal and early repayment: they are widely considered as important in offering high levels of protection to consumers. The evaluation found that a majority of consumers are aware of both rights, with the right of withdrawal far less frequently used than the right of early repayment. Relatively few consumers experience problems in exercising their right of withdrawal, with slightly more facing issues with early repayment. A recurring issue with the right of withdrawal relates to a lack of clarity on its application to linked credit agreements. Issues with the right of early repayment primarily relate to incorrect calculation of the compensation to be paid to the creditors.

·Definitions: the wording of the definitions has proved effective, although some ambiguity remains about whether the Directive covers certain new forms of lending that have appeared online (e.g. peer-to-peer lending).

·Scope: the scope of application of the Directive has not generally impacted the ability of the Directive to meet its objectives, though there is serious stakeholder concerns about adequacy of the lower threshold of EUR 200. Many Member States extended the scope of application of the Directive to consumer credit not covered by it, contributing to the fragmentation of the regulatory framework.

Efficiency and scope for burden reduction and simplification

The evaluation found that the costs of the Directive are proportionate to its benefits, and estimates that those benefits outweigh the costs. The chief benefit of the Directive is the reduction in consumer detriment. Other factors contributing to a reduction in consumer detriment include the development of the credit sector itself, more stringent legislation in certain Member States, a possible uptake in overall sector compliance due to familiarity with the Directive, and increased consumer awareness.

Costs associated with the Directive include direct compliance costs, such as initial set-up costs. For public entities, this includes transposition of legislation, while private companies incur staff training and adaptation of IT systems costs. Public entities also have the recurring costs of monitoring, compliance and enforcement. While the 2008-2010 implementation period saw initial start-up costs for businesses - and for public administrations, to a lesser extent – ongoing and recurring costs are relatively limited for most provisions. Consumer detriment in consumer credit is estimated to have decreased over 2010-2018, with 20-25% of that reduction attributed to the Directive.

The evaluation estimates that many consumers may be affected by cross-selling practices where creditors try to push additional products by making them conditional on loan offers, unrequested extensions of the credit line 328 on revolving credit, asking for advance (down) payments, and - to a lesser extent – non-verification of the ability to pay (as part of creditworthiness assessments) and non-receipt of the Annual Percentage Rate of Charge or Standardised European Consumer Credit Information. Consumers’ lack of awareness of their rights under the Directive may impede their exercise of those rights, in particular the right of withdrawal and understanding the Annual Percentage Rate of Charge.

The evaluation concludes that the provisions of the Directive are cost-effective. While some of the costs of implementing these provisions weigh on creditors, some (in particular creditworthiness assessment) costs would also be incurred in their absence in order to mitigate against the risks of defaulting customers.

There is further potential for improving the efficiency of the Directive by solving some compliance issues through better enforcement.

In the wake of the 2017 REFIT platform opinion, the evaluation also identified some scope for burden reduction and potential simplification, essentially for those elements that are costly yet without sufficient benefit to consumers, e.g. requirements for radio (and possibly TV) ads. However, such process runs the risk of potentially undermining consumer protection standards, hence it is not clear whether the Directive could be simplified without harming its consumer protection objective.

Coherence

The Directive and its implementation at Member State level shows a fair degree of internal coherence, overall. The Directive provisions work well together, offering a good standard of consumer protection. There is, however, a degree of incoherence with respect to the second objective of the Directive, i.e. fostering an internal credit market in the EU. As a broad-scope objective, it is difficult for the Directive to achieve it on its own merits. In addition, the breadth of certain provisions has indeed contributed to their diverse application across Member States.

Overall, Member States’ transposition of the Directive is coherent with the obligations stemming from the Directive. Nevertheless, several Member States have implemented some provisions of the Directive in very different ways making use of different regulatory choices (as allowed by the Directive) and/or have introduced provisions going beyond those foreseen in the Directive – typically to address specific national problems. This legal fragmentation has led to a lack of harmonisation and has undermined the internal market objective of the Directive.

The Directive is largely coherent and complementary with other EU-level consumer policy and legislation, although some elements could be better aligned. Greater alignment e.g. as regards approaches to responsible lending with the Mortgage Credit Directive (2014/17/EU), which however covers on average higher value and more legally complex credit agreements, would foster legal clarity for Member States and credit providers and ensure a consistent approach in protecting consumers against over-indebtedness. The provisions of the Directive and their implementation at national level are generally coherent and compatible with the General Data Protection Regulation, however better clarity could be achieved in relation to the amount and categories of data data to be used for the creditworthiness assessment.

Relevance

The evaluation clearly showed the continued relevance of the objective to achieve higher consumer protection standards. This is reflected, for instance, in the way that most Member States have transposed and implemented the Directive, often going beyond the requirements laid down by the Directive to ensure better consumer protection (e.g. standard information requirements to be included in advertising).

Ten years on, the Directive covers some of the current consumer needs, although this evaluation suggests that the Directive is not sufficiently addressing irresponsible lending. Digitalisation has modified the decision-making process and overall habits of consumers, whose behaviours and preferences have evolved, as shown by recent studies 329 . These aspects are not necessarily reflected in the Directive, which is still anchored to the old pre-contractual ‘information paradigm’.

The objective on the fostering the internal market for consumer credit also remains relevant, although the Directive provisions only partially support its achievement. The adoption of the Directive has led to a certain degree of legal harmonisation, and as such a certain level playing field for providers. While the expected level of overall harmonisation did not materialise, the evaluation pointed to the ongoing relevance of a specialised framework that takes account of the functioning of consumer credit. As regards the cross-border credit market, still limited mostly because of external regulatory and natural barriers, there are indications that it may develop in the future.

The scope and thresholds of the Directive appear to be somewhat unadjusted with respect to the objectives and current context of the Directive. For example, the Directive excludes certain specific products, some of which have generated concern, such as some zero-interest loans, some overdraft facilities, leasing agreements that do not impose an obligation to purchase, and agreements with pawnshops. The thresholds (from EUR 200 to EUR 75,000) are noted as only partially relevant to the Directive’s objectives. The distinction between credit based on amount rather than on typology is artificial in light of the findings of the evaluation, in so far as it does not consider the risks linked to high-cost, short-term loans and revolving credit. Finally, most of the definitions in the Directive remain relevant to the current market situation. However, there are uncertainties as to whether the relevant definitions are entirely fit for purpose to address new forms of lending (e.g. peer-to-peer lending).

EU added value

The added value of the Directive emerged clearly from the evaluation and primarily lies in its contribution to increasing consumer protection. The introduction of harmonised provisions clearly contributes to a high level of consumer protection across the EU. In some Member States, a framework for the protection of consumers was already in place at the time of transposition, while for others it represented a significant change to their regulatory landscape. Variations between Member States have been observed not only in the impact of the Directive but also in how it was transposed. In some instances, transposition went beyond the requirements of the Directive, contributing to the fragmented landscape of consumer credit regulation in the EU. Were the Directive to be withdrawn, however, further fragmentation would be likely, which could lead to vastly different standards of protection over time and negatively impact consumers in those jurisdictions where standards would likely fall.

The lending sector is progressively getting digitalised with an increasing number of consumer credit contracted online. This digitalisation could help breaking down certain practical barriers to the cross-border provision of credit, thus increasing the number of consumers obtaining credit in another Member State. There is indeed a growing interest among consumers for cross-border credit offers: 29% of the respondents to the consumer survey conducted for the evaluation supporting study said they had sought for a credit from a creditor located in another EU country. In such a context, the EU added value of the Directive is likely to increase, given that the Directive provides for a similar set of rights and obligations for consumers and creditors across the EU. A harmonised regulatory framework at EU level facilitating the development of a more transparent and efficient credit market can benefit both businesses and consumers. On the one hand, industry does not need to face high compliance costs to meet different national rules and can offer more products to more people, possibly at better conditions, through the achievement of economies of scale. On the other hand, increased competition leads to a wider and cheaper selection of credit products for consumers. However, the Directive needs to be adapted to market changes (changing consumption patterns, unfair lending, new market players – see EQ15) that are likely to intensify because of digitalisation.

Annex 1: Procedural information

Lead DG, Decide Planning/CWP references

-Lead DG: DG Justice and consumers

-Decide Planning: PLAN/2018/3118

-CWP 2019 – Annex II (REFIT Initiative N.10) 330

Organisation and timing

The evaluation took place between June 2018 and November 2019 and was announced in the 2019 Commission Work Programme, also following the commitment established in the 2017 REFIT Platform Opinion on Article 4 of the Directive. The evaluation also arises from Article 27(2) of the Directive, which specifies that the Commission should in particular review periodically certain thresholds and monitor the effect of the existence of the regulatory choices therein on the internal market and consumers.

The evaluation was carried out by Unit E1 "Consumer Policy" of the Commission, DG Justice and Consumers.

Representatives from the Secretariat General, the Legal Service, DG Financial Stability, Financial Services and Capital Markets Union (FISMA), DG Competition (COMP), DG Internal Market, Industry, Entrepreneurship and SMEs (GROW) and DG Communications Networks, Content and Technology (CNECT) were appointed to the Steering Group.

The Inter-Service Steering Group met 7 times between July 2018 and December 2019.

Exceptions to the better regulation guidelines

The Better Regulation Guidelines and Tools were followed without any exception.

Consultation of the Regulatory Scrutiny Board

The evaluation was selected for scrutiny by the Regulatory Scrutiny Board (‘the Board’). The RSB received the draft version of the evaluation Staff Working Document on 20 December 2019. Following the hearing which took place on 29 January 2020, the Board issued a positive opinion on the Evaluation.

In its opinion, the Board finds the Evaluation report (i.e. the Staff Working Document) to be comprehensive, informative and reader-friendly. Nonetheless it considers that it should further improve with respect to several aspects.

The evaluation Staff Working Document was modified to address the Board’s recommendations. The main conclusions have been redrafted to draw lessons that emerge from the analysis. Limitations, including those linked to data collection, and uncertainties of the analysis have been better explained. Moreover, the significance of low levels of cross border consumer credits and obstacles for the internal market have been better explained, as well as the need for EU level measures.

For more details, see the below table.

Annex 2: Stakeholder consultation – Synopsis Report

Introduction & Consultation strategy

The goal of the consultation strategy was to ensure that, across a series of consultation activities, all relevant stakeholders were given an opportunity to express their views on the functioning of the Consumer Credit Directive (hereinafter, the “Directive”, or “CCD”).

The primary stakeholders of the Directive are consumers and creditors across the EU. However, besides these two, other stakeholders are indirectly or potentially impacted, alongside actors in charge of implementing these provisions. As such, the following stakeholder categories were targeted as part of the consultation strategy:

ŸConsumers;

ŸCreditors/Providers (be it “banks” or “non-banks”);

ŸCredit intermediaries (who act as intermediaries between the consumers and the creditors, this could include brokers, comparison website etc);

ŸCredit registers (who collect and provide information to creditors on the creditworthiness of consumers);

ŸTrade, business and other professional associations representing credit providers, credit registers and intermediaries;

ŸConsumer organisations;

ŸNon-governmental associations, platforms and networks;

ŸResearch and academia;

ŸNational public authorities, in charge of supervising and enforcing consumer credit rules;

ŸEU-level supervisory authorities and international organisations;

ŸCommission expert groups.

The consultation strategy relied on a mix of methods and tools to ensure a comprehensive and representative collection of views and experience with the functioning of the Directive.

Consultation activities and tools

The following table summarises the range of stakeholders consulted as part of the evaluation, in line with the consultation strategy.

Table 1. Summary interviews and surveys (planned and conducted)

·The Open Public Consultation ran from January 2019 until early April 2019. The questionnaire was tailored to two main categories of stakeholders, with a 1st section aimed at the general public (i.e. consumers) and a 2nd section geared towards stakeholders who are involved in the implementation of the Directive or who have detailed knowledge of the functioning of the consumer credit market.

·The survey and interviews carried out by the contractor lasted from February to May 2019 on the basis of targeted questionnaires. Specific follow-up consultations took place over the period June-August.

·The consumer survey received 3,886 responses from the EU-28. To ensure a representative sample of EU consumers, the survey response rates are based on the size of the Member State and the incidence rate of consumer credit in a given Member State. Consumers were surveyed in 24 official languages. The results of the consumer survey were weighted according to the population size of the Member States.

·The online creditors’ survey received responses from 51 financial service providers, out of a total reach of approximately 900 to 1000 creditors which were approached via different channels 331 .

ŸA full-day conference “Protecting consumers taking credit in the digital era” was organised by the Commission in collaboration with the think-tank CEPS on Tuesday 18 June 2019. It comprised panels on a) the role of consumer credit in the economy; b) the scope of application of existing rules; c) the effectiveness of information disclosure; and d) the model of responsible lending in the digital era. The event gathered a wide range of 140 relevant stakeholders, such as EU and national high-level officials, senior practitioners, academics and research organisations, and representatives of consumer associations and banks.

·The European Economic and Social Committee (EESC) contributed to the evaluation of the Directive by way of an information report in July 2019. The report is based on consultations with 30 civil society organisations (CSOs) and national institutions. Data was collected through fact-finding missions, a questionnaire, position papers and an extended study group.

·The contractor of the evaluation also made use of the outcomes and position papers produced by relevant Commission expert groups, most notably the Financial Services User Group (FSUG) and the Member State experts’ group on the implementation of the CCD.

·Other inputs were received by way of specific ad-hoc reports, data and contributions from consumer associations, industry representatives and researchers.

The evidence collection for the Staff Working Document (SWD) is also based on the Commission’s experience in monitoring and implementing the Directive.

The evidence findings of an external support study prepared by ICF (Support study for the evaluation of Directive 2008/48/EC) fed into the analysis of this SWD. The study was carried out under close guidance of DG JUST. As such, the content of this SWD does not deviate from the support study but only synthetize its main findings to fit with the length requirements of evaluation SWDs.

Evidence, sources and quality

The roadmap on the CCD Evaluation was published on the Commission’s website on 30 June 2018 for a 4-week consultation period. It gathered 21 replies, coming from citizens (2), consumer associations (4), Member States (3), industry representatives (7) and other entities (5).

Methodology and tools used to process the data

The surveys of creditors and consumers were carried out on an anonymous basis and their results were processed and comprehensively analysed. The stakeholder interviews and surveys were organised on the basis of specifically drafted semi-structured questionnaires (interviews) and an online questionnaire (survey). Stakeholders were selected based on their role and relevance to the evaluation as per the consultation strategy. Careful attention was given to ensure a balanced representation between Member States represented and between stakeholder categories (consumer representatives, creditors and other relevant business representatives, Member States authorities). EU-level consumer and creditor associations were also asked for input as well as assistance in reaching out to their members. Follow-up interviews were carried to clarify some input received through the stakeholder surveys. Replies to the Open Public Consultation were analysed separately and a separate report was published as a result 332 , however both the quantitative and qualitative dimension of the Open Public Consultation replies were taken into account in the overall evaluation.

Main stakeholder feedback

The results of the consultation activities were used according to the evaluation framework. For each of the evaluation questions, the evaluation framework clarified which of the consultation activities would be relevant for data collection. Main stakeholder feedback results are presented below by consultation strands, concisely describing how they fed into the evaluation. The feeding of the consultation results into the evaluation is then presented in greater detail in part 1.4 of the present Synopsis Report, depending on the evaluation criteria (effectiveness, efficiency, relevance, coherence and EU added value):

Open Public Consultation

Almost all individual respondents had obtained credit in the Member State where they reside and had not tried to obtain credit in a different Member State. Contribution from individuals showed a rather high level of familiarity with the main provisions of the Directive.

Overall, a majority of respondents (among both individuals and stakeholders responding to the Open Public Consultation) considered the Directive to be effective in relation to its main features.They were overall very positive about the different provisions of the Directive, with the vast majority finding the provisions of the Directive somewhat beneficial or even very beneficial

A great majority of respondents assessed positively the relevance of the Directive, albeit with certain nuances (the scope of the Directive and the provisions dealing with information disclosure were considered somewhat a bit less relevant than the others).

The main benefits of the Directive highlighted by stakeholders are the higher standard of consumer protection it introduced in key areas (rights of early repayment and withdrawal for instance). Respondents in majority thought that benefits of the Directive outweighed the costs.

The Directive perceived as coherent with the main relevant pieces of EU legislation by a majority of stakeholders.

The overall perception of stakeholders is that the added value of the Directive lies in the increase of the level of consumer protection and should remain regulated at EU-level.

“Protecting consumers taking credit in the digital era” 18th June 2019 event

The Directive event highlighted a number of different views, though the Directive is perceived as relevant and that consumers need a high level of protection. There was discussion on the scope of the Directive and the fact that it did not cover certain problematic credits. Stakeholders stressed the need to apply the same regulation to the same activity, since banks and non-banks are often supervised differently in Member States.

The effectiveness of the Directive’s provisions on information disclosure was challenged: they are perceived by the industry as a burden for creditors (especially in the case of advertising) whilst for consumers, they are considered to focus too much on the quantity rather than the quality of the information. They also do not sufficiently take into account the impact of digitalisation.

Concerning responsible lending, some speakers stressed the need to ban certain products (particularly pay-day loans) that are considered toxic, whereas some other stakeholders (creditors, credit registers) advocated for some flexibility in how creditworthiness assessment should be carried out. From their side, consumer representatives stressed that this exercise should be more “borrower-focused” and therefore more clearly spelled-out in the Directive.

Targeted stakeholder consultations

Consumer associations were most critical of creditworthiness assessment (CWA) and Annual Percentage Rate of charge (APR). Their suggestions for improving the Directive effectiveness mainly were to cap interest rates, removing the EUR 200 threshold to also cover lower credits and peer-to-peer lending. Tighter rules or banning were put forward on the provision of credits in spite of a negative CWA, revolving credit and selling of credit products to vulnerable consumers. Better enforcement, harmonising sanctions and clearer rules on advertising and pre-contractual information were also suggested as action points.

Industry representatives considered the Directive effective in protecting consumers, although they believed the advertising rules to be ineffective, due to information overload.

A majority of national authorities (and enforcement bodies) argued that the Directive has been effective in ensuring a high level of consumer protection. While most provisions of the Directive were deemed effective, CWA generated some concerns.

A large majority of respondents across the board also praised the introduction of the Directive as it resolved issues thanks to new provisions/standards. Several respondents criticised the room given for Member State interpretation of Directive provisions.

EESC information report

This report concluded that the directive’s implementation and enforcement is considered to be insufficient, also because of the fact that national supervisory authorities lack sufficient resources and have ineffective sanctions. The report supported the expansion of the scope of the Directive to credits below EUR 200, coupled with the inclusion of all types of credit and new forms of credit. Concerns were expressed about the Directive not ensuring a level playing field, due to consumer credit activities being confined to national borders and digitalisation having a limited impact on the way consumer credit is currently provided. Regarding pre-contractual information and advertising provisions, it was noted that information given to consumers often lacks clarity, with consumers finding it too complex or long. Also according to the report, CWAs are not always properly conducted because data used to assess the consumer's creditworthiness is sometimes irrelevant, outdated, or comes from unreliable providers. Moreover, the assessment criteria were found not to be transparent or uniform and, at times, to be discriminatory. Finally, it was noted that more should be done from Member States in terms of financial education.

FSUG opinion and recommendations

The FSUG recommendations are along the lines of establishing a well-functioning EU consumer credit market in which creditors and intermediaries act responsibly and treat consumers fairly, and preventing excessive debt levels and over-indebtedness. Regarding the scope of the Directive, the FSUG supports its extension to credits below EUR 200. A review of the list of credit products which are currently exempted from the Directive scope is deemed necessary, so as to ensure that there are as few exemptions as possible. Peer-to-peer lending should be included in the scope of the directive. Other recommendations include: the introduction of rules on product oversight and governance for credit manufacturers and distributors; to ensure that credit advertising are effective; to align the Directive rules related to assessment of the consumer’s creditworthiness with provisions of the Mortgage Credit Directive; to introduce obligations for creditors to detect vulnerable consumers as early as possible; to define what is an acceptable default rate within a risk pool for all credit providers and to ensure that national competent authorities are well-equipped.

Roadmap

Attention was drawn to the fact that an increasingly digitalised market undergoing continuous innovation creates both opportunities and risks for creditors and consumers. In this context, it was deemed necessary to evaluate whether the Directive rules are fit for purpose. Replies received from stakeholders included a good mix of consumers & consumer associations, industry representatives and Member States. Stakeholders mainly provided their opinion in relation to three aspects covered by the Evaluation of the Directive: scope, pre-contractual information and creditworthiness.

Feeding the consultation results into the evaluation by applied criteria

Effectiveness

Consumer associations consider the APR a well-known tool, useful for comparison purposes. The majority of consumers surveyed are aware of the APR and its implications and have found it either helpful or very helpful when choosing their credit. However, consumers struggle to understand what it includes under the ‘final cost’ element. Most associations argued that the way in which the APR is presented by some creditors prevents effective comparison. They pointed to advertising in which consumers are misled about the final price, or when ‘representative examples’ are calculated in an ‘optimistic’ way.

Industry representatives argued that the definition of the APR is confusing for both consumers and creditors. They pointed out that the formula is based on a yearly period, thus does not apply very well to short-term loans and can be difficult to interpret. Finally, the APR does not include default charges.

Enforcement bodies similarly agreed on the complexity of APR calculation for consumers. A majority of national authorities argued that the introduction of the APR has facilitated consumers’ understanding of the offers and allowed for easier comparisons. They did, however, agree that certain areas could be improved, in particular the exclusion of ancillary services and consumer understanding of what the APR includes.

Consumer associations stated that credit providers are - generally - providing the standard information required by the Directive. They identified several issues, however. For advertising, the main concerns are: information not provided in a clear and prominent way, standard information (e.g. total amount or duration) missing and information (e.g. representative example) presented in a misleading manner. Several consumer associations also pointed out that credit advertisements are increasingly targeted at vulnerable consumers, thus promoting overall consumption while neglecting the possible impact of such products. For pre-contractual information, the main issues are: late provision of the information (at the moment of signing or right before) and information not clear or concise enough to maximise understanding of the most relevant conditions.

The adoption of the Directive is seen by consumer associations as having increased the amount of information provided in advertisements across the EU (especially the APR) and established the obligation to provide standard pre-contractual information through the Standard European Consumer Credit Information (SECCI), which did not exist in some countries. The effectiveness of the relevant consumer protection obligations of the Directive is considered questionable, especially in relation to pre-contractual information. Even those who believe it has been effective agree that there is room for improvement. Consumer associations argued that there is a need to ensure clearer information, presented in a more reader-friendly way (including by focusing only on the most relevant information), and clearer explanations by the credit provider. Limiting advertisements of consumer credit is also seen as necessary by some consumer associations.

Industry stakeholders argued that credit providers generally comply with the requirements established by the Directive. However, many noted that advertising requirements are not adapted to some media channels and pre-contractual information requirements are similarly ill-suited to the digital era. Excessive information is, according to them, provided at both advertising and pre-contractual stage, which does not allow consumers to identify and retain the key relevant aspects. Lack of flexibility of the overall framework, imposing the same obligations on most consumer credit, regardless of the type and amount (and thus risk) was also flagged as an issue. The creditors’ survey revealed that around 70% of the respondents were provided the standard information required by the Directive at the advertisement stage. Over half of the creditors reported having increased the information provided to consumers in their advertising since 2008, namely the APR and total costs. Around 40% of the creditors reported facing obstacles in complying with the obligation to provide the standard information.

Enforcement authorities reported issues of compliance with the obligations to provide information, especially in advertising and marketing. The main issue relates to the failure to provide the standard information in a clear and prominent manner in advertisements, especially in the representative examples. Issues with the provision of pre-contractual information vary, with some enforcement bodies reporting that information is not provided in a timely manner, while others complain about the failure of credit providers to provide adequate explanations, or to provide such information at all. Overall, national authorities held that credit providers are generally complying with their obligation to provide standard information at advertising and pre-contractual stage. However, many mentioned that key information is often not prominently displayed, resulting in misleading advertisements, especially in relation to fees and charges applied. Pre-contractual information is often not provided in a timely manner. Pre-contractual information is also, in their opinion, not sufficiently clear to ensure that consumers understand the key elements and conditions, especially in relation to fees and risks. Opinions are divided on whether the provision of pre-contractual information is always the adequate tool to protect consumers. Many called for a reduction in the amount of information and more reader-friendly presentation. Some national authorities also called for stricter rules on targeted advertising.

In the consumer survey, respondents had a positive overall opinion about the information provided at the advertising and pre-contractual stage. They reported that advertisements mostly correspond to the offer and that the information provided before signing the contract is useful, timely and easy to understand, allowing them to compare different credit offers. However, awareness of the SECCI is low among consumers (33%). The majority of those who are aware of its existence were provided with the form before signing the contract, but in most cases, this was done either the day before or on the day of the signing. Nevertheless, SECCI is seen as a useful tool to inform their choice. There is a low level of satisfaction with the information provided in advertisements, with only one-quarter believing it to be sufficient.

Most consumer associations found that the right of withdrawal is nearly always or often respected in their Member State. A large majority of industry representatives agreed. National authorities and enforcement bodies reported few issues, with some noting that the right of withdrawal from linked credit agreements was unclear. According to the majority of creditors, less than 1% of consumers make use of the right of withdrawal. This is confirmed by the findings of the consumer survey. Most were aware of their right of withdrawal and were informed by the creditor before signing the credit contract, although less than half knew that the deadline for withdrawal was 14 days. The majority of consumers did not report any issues in exercising their right of withdrawal, although approximately one-third of those who tried to withdraw the contract indicated that the creditor had made it difficult for them to withdraw from the contract.    

Similarly, the majority of consumer associations found that the right of early repayment was always or very often respected by creditors in their Member State. According to several industry representatives, all aspects need to be considered when calculating the maximum level of early repayment fees, and they noted particular difficulties with re-financing. Several stakeholders argued that more proportionality is needed in early repayment fees, due to the large scope of the Directive. Enforcement bodies argued that undue fees were charged for early repayment, or that the fees charged were excessive. For national authorities, the right of early repayment was found to function well across Member States, apart from some issues with the correct calculation of the fees. The consumer survey pointed out that around one-quarter of consumers had tried to repay their credit early. Consumers are highly aware of their right of early repayment, with most receiving relevant information before contracting the credit. In around one-third of cases, consumers indicated that their current loan had a penalty fee for repaying the loan earlier than agreed. However, close to half stated that there was no penalty fee. In the majority of cases, consumers did not encounter any difficulties when trying to exercise their right of early repayment.    

Most consumer associations were doubtful that credit providers in their country consistently carry out creditworthiness assessment before concluding a credit agreement. Although they believe that CWA is effective in providing consumers with the credit most appropriate for them and combating irresponsible lending and over-indebtedness, consumers are often dissatisfied with the way CWA is performed. Key issues are the lack of transparency in scoring systems and the data they are based on, the lack of both positive and negative databases, and their poor quality. In their opinion, the Directive would need to include more detail on how CWA should be performed and the data that should be used, as well as imposing an obligation to refuse credit to consumers scoring poorly.    

Industry representatives had mixed views on the CWA. Roughly half of respondents did not see any issues with the need to perform CWA, and the majority did not consider the differences in approach between Member States to be an issue - in fact, they saw this flexibility as a positive element. Those that took issue with these differences mentioned difficulties in enforcing the provision, establishing jurisdiction in case of complaints, the purpose of databases in different Member States (i.e. the use of either ‘positive’ or ‘negative’ data), variation in the type of information used in such databases, and difficulties in accessing this information from other Member States.

The majority of enforcement bodies identified issues with CWAs. They noted the lack of (or limited) compliance with the requirement to collect ‘sufficient information’ (including relying on publicly available information as opposed to information provided directly by the consumer) and the focus on assessing ability to repay ongoing costs rather than the total amount borrowed. According to them, the wording of the relevant Directive provision has created a lack of clarity with respect to CWA.

National authorities were evenly divided, with half arguing that the obligation to carry out a CWA is in itself effective in ensuring that consumers obtain appropriate credit and another half highlighting as an issue the different approaches to CWA.

Most of the creditors surveyed underlined that creditworthiness was checked by the creditor and this was further confirmed by the consumer survey. Creditworthiness was checked mainly through income, professional status and household composition. More rarely, it was checked through outstanding household credits, household expenses and spouse’s income.

Stakeholder opinions varied considerably on the functioning of the cross-border market. Opinions on whether the Directive has facilitated cross-border access to credit are divided. Some argue that it has indeed facilitated access, claiming that it allows for easier comparison of offers. Others disagree, stating that the consumer credit market remains markedly local and that the Directive has not managed to harmonise legal disparities.    

According to consumer associations, the main obstacles to the functioning of the cross-border consumer credit market are language barriers, lack of harmonisation of insolvency/settlement rules, the requirements imposed by creditors (e.g. residence, documentation, employment) and the fact that the local offer is often sufficient. Industry representatives often argued that the cross-border market for consumer credit is not sufficiently developed. The fragmentation of legislation across the EU was blamed for preventing creditors from providing credit cross-border, with uneven implementation of the Directive and a lack of harmonisation of other rules relevant for creditors (e.g. fiscal and civil law, CWA rules, legal framework for debt recovery, and anti-money laundering obligations). Other important obstacles highlighted were difficulties in assessing the creditworthiness of foreign consumers (due to data access challenges), different consumption habits, lack of demand for cross-border credit, the need to acquire licences in every Member State, and language barriers. Responses from the creditor survey pointed at the same obstacles.

Two enforcement authorities highlighted issues with the provision of credit online, although these were not exclusively related to credit providers established in another Member State (i.e. national or international credit providers were also implicated). Only three Member State authorities considered there to have been an increase in the number of cross-border operations (or increased appetite for them) since the adoption of the Directive. Language barriers and a lack of harmonisation were the main obstacles highlighted. A lack of incentives to provide credit cross-border (due to a low demand) was also mentioned.

The consumer survey pointed out that the majority of consumers do not look for credit abroad.

Consumer associations argue that the Directive has contributed to increasing competition in the consumer credit market at national, with a smaller majority observing an impact at EU level. There were very limited views expressed on whether increased competition had led to improved consumer welfare, with only one noting lower prices. By contrast, another stakeholder mentioned an increase in aggressive marketing as a negative result for consumers. A small majority of industry stakeholders argued that the Directive has had no impact on competition at national level, while a much bigger majority believes that impact at EU level is positive. A majority of respondents believe that the Directive has had an impact on the credit market, particularly in respect of increased competition, greater supervision and greater cost transparency.

Efficiency

Consumers associations generally argued that the costs generated by the Directive are proportionate to the benefits or that benefits outweighed costs, a view shared by national authorities. Both categories of stakeholders did not, however, express views on specific benefits or costs on each of the provisions. Industry stakeholders pointed to the fact that the implementation of the Directive implied additional costs (administrative burden, compliance costs of elements such as information requirements, the right of withdrawal, the right of early repayment and the CWA) for them. Most industry stakeholders argued that the information requirements have added substantial costs to advertisements to no effect, as they overloaded consumers which excessive information in certain sectors.

Over half of the creditors responding to the survey did not have an opinion on whether the costs outweigh the benefits of the Directive. Those with an opinion, however, tended to believe that the costs are greater than the benefits. However, no evidence was provided as part of these consultations as to the extent of the costs incurred, or whether they were directly linked with the implementation of the Directive itself.

Consumer organisations’ opinions on whether the Directive should be simplified were divided. Some argued that a simplification of the legislation (particularly in relation to the provision of information) would enable consumers to better understand the information, as well as their rights. Others do not believe this is necessary and warn that any simplification should be careful not to lower consumer protection standards. Room for simplification was identified by most industry representatives interviewed. Examples related to further harmonisation of rules to avoid legal fragmentation across the EU and introducing a proportionality element allowing the level of detail of the information to be adapted to the potential risks of the credit product at hand. Most national authorities believe that the Directive has not created any unnecessary burden and that there is no need for further simplification of the legislation.

Coherence

Relatively few views were expressed by interviewed stakeholders in regard to coherence of the Directive with its provisions and objectives, and in regards to other legislation. A few stakeholders (mainly national authorities and consumer associations) pointed out at the different wording and standards in the Directive compared to other legislation, in particular the MCD. They pointed out that better alignment of the provisions could improve the implementation of both Directives, as it would improve legal clarity for Member States and credit providers and ensure a consistent approach to protection of consumers against over-indebtedness. Some respondents, essentially consumer associations, also argued that adding data to credit databases is not done in accordance with the GDPR and the equivalent transposition measure in that Member State. Internal coherence issues were mentioned by several enforcement bodies. One pointed to risks with overrunning in overdrafts compared to revolving credit, arguing that overdrafts are subject to a light regime under the Directive, whereas revolving credit is not.

Relevance

Overall, consumer associations believe that the Directive is not entirely adapted to current market needs. They made particular mention of the Directive thresholds, especially the minimum one (EUR 200) as inadequate. Consumer associations also underlined the need to cover new market players (such as fintech companies, P2PL platforms etc.), leasing contracts, overdrafts and agreements with pawnshops. They frequently criticised exemptions, in particular some types of credit falling outside of the scope of the Directive (i.e. zero-interest loans and overdraft facilities). In addition, they argued that credit intermediaries should be bound by the same rules as credit providers, at least as far as pre-contractual information and data collection is concerned. They also noted the need to adapt to the changes in consumer behaviour.

Feedback on the relevance of the Directive is more positive among industry representatives than among other stakeholder groups. Most negative views stem from the belief that the scope and definitions should be updated to ensure that all credit providers are subject to the same rules, including the newly emerged players (e.g. P2PL, payday loan providers). Opinions of industry representatives on whether the Directive addresses current needs are divided, although there is overall consensus that it is not adapted to future challenges and needs (e.g. emergence of new business practices and market players, changes in consumer behaviour).

The only enforcement authorities to comment on the scope of application advocated for a broader scope to cover zero-interest rate loans, short-term credit and P2PL platforms and wider digital solutions, and potentially other credits that do not exist yet. Most national authorities believe that the scope of the Directive is not adapted to current needs, especially the minimum threshold. Issues were identified in relation to the cross-selling of a payment protection insurance (PPI), with consumers often nudged to purchase it when obtaining credit. PPIs can entail disguised high costs which are not included in the calculation of the APR. One group of national authorities advocated for an overall revision of the scope to ensure that only justifiable exemptions apply. The majority of national authorities believe that the Directive addresses current but not future challenges. The main shortcomings highlighted relate to the developments in the market as a result of digitalisation. Other issues to address in the future concern the establishment of stricter rules on CWA and the APR.

Specifically in terms of definitions, consumer associations deemed the definitions of credit, credit agreement, credit intermediary and total amount of credit to be relevant. However, some associations believe that the definition of creditor and credit intermediary should be broadened to include entities not currently explicitly covered by the Directive. Similar to the consumer associations, most industry representatives consider the definitions to be relevant and sufficient, with a small group pointed out that the definitions of creditor and credit intermediaries should be slightly modified or clarified. For most national authorities, the definitions of creditor, credit agreement, credit intermediary and total amount of credit were argued to be relevant and adapted to current needs. A few national authorities also indicated that the definition of ‘total cost of the credit to the consumer’ does not clearly stipulate the charges that need to be taken into account. Further clarification of other terms were requested by individual national authorities, such as ‘linked credit agreement’, ‘free of charge’, ‘overdraft facility or overrunning’, ‘in good time’, ‘means of distant communication’, ‘consumer’, ‘goods-linked credit’, and ‘ancillary services’.    

EU added value

Most consumer associations agreed that taking EU-level action has contributed to creating a level playing field among EU Member States as it harmonised rules for consumers and creditors, which, in turn, reduced the disparities between countries. A lack of equally effective supervision was mentioned as one of the reasons behind the lack of harmonisation across the EU. Nearly all consumer associations agreed that, overall, there was added value in enacting EU-level legislation in the field of consumer credit. This added value was identified as stronger consumer protection, a varied credit offer and a (more) harmonised market. Industry representatives likewise generally agreed that there is added value in adopting legislation at EU level, citing harmonised procedures and rules, establishing a level playing field, greater consumer protection, a possible increase in cross-border trade and more transparency for consumers.

A majority of industry stakeholders did not give an opinion on whether EU level legislation has helped to create a level playing field. Those that argued for the absence of a level playing field pointed to the lack of harmonisation in civil law, lack of a cross-border market, and room for interpretation in implementing the Directive.

Almost all enforcement bodies agreed that EU-level action contributes to a level playing field because companies are required to comply with the same basic requirements. Similarly, the majority of national authorities held that taking EU-level action contributed to creating a level playing field among EU Member States in the field of consumer credit either to a great or to some extent. A small number of respondents identified better functioning of the internal market as an added value delivered by the Directive. The majority of enforcement bodies argued there is added value in enacting legislation in this area as it helps to provide redress to consumers who, ultimately, face similar issues across the EU. They went on to argue that harmonised rules foster competition and close legislative gaps in certain Member States. Most national authorities agreed that there is added value in adopting EU-level legislation in the area of consumer credit, citing better consumer protection and improved competition.

Annex 3: Methods and Analytical models used in preparing the evaluation

This annex provides a description of the approach followed to quantify the main benefits and costs to consumers, financial providers and public authorities that can be attributed to the Consumer Credit Directive (‘CCD’ or ‘the Directive’) since its introduction in 2008.

Benefits

According to its two main objectives the Directive should bring the following benefits:

ŸEnsure a better protection of the EU consumers which in turn leads to a lower consumer detriment (possible due to a lower incidence rate of problems and a lower magnitude) and to an increase in demand for consumer credit;

ŸEnhancing a level playing field potentially leading to an increase in cross-border transaction of consumer credit.

Our research shows that the Directive had an impact on increasing consumer protection. On the other hand, the evaluation did not find hard evidence that changes in the demand or supply of consumer credit products can be directly attributed to Directive (including cross-border activities). Consequently, only the impact of the Directive on the reduction of consumer personal detriment was quantified.

Reduction of personal detriment

Personal detriment refers to loss of welfare experienced by individuals due to problems that occur after the purchase and that were not expected (based on reasonable expectations). Personal detriment includes financial and non-financial losses (e.g., time losses, psychological detriment).

Due to various factors, the consumer detriment was reduced in most of the EU28 Member States since 2010. It is assumed, based on deductive reasoning with the team of internal experts, that 22.5% of that change was due to Directive (i.e., incremental effect of Directive). This is done by taking into account the key factors that have played a role in reducing consumer detriment since 2008 and considering their weight:

·Development and trends of the credit sector itself: 25%

·More stringent legislation in some MS, and improved enforcement (so government-induced): 15%

·Increase in sector compliance over time: 10%

·Increase in financial literacy among consumers: 5%

·Increase in consumer awareness of APR, SECCI and contractual terms in terms of consumer credit (as unchanged for 10 years now): 10%

·National-level campaigns in boosting consumer awareness: 5%

·Other legislation and other factors: 7.5%

There were no indications of the weight of the Directive in the reduction of personal detriment (the benefit). The results have been based on expert judgement, and considering the likely weight of different factors in the reduction of personal detriment. The figures for calculating personal detriment are based on the CIVIC study 333 (see below) and are very robust. The estimate of the detriment that can be attributed to the Directive is, as indicated, based on deduction and in itself moderately robust. The first element in assessing the weight included listing the factors that played a role in reducing detriment. The second element was a qualitative assessment (narrative, description) and quantitative assessment (rating) of its importance. On this basis, the above percentages were derived by ranking these factors. The data is, nonetheless, moderately robust because there is a fairly high probability that a Directive in a policy area is never the only or deciding factor for attribution of change, and therefore the weighting would not be considered to exceed 30-40%. At the same time, the pace of changes in the sector (supply) and demand-driven changes have further reduced the unique role of the Directive. It was also derived to be unlikely for the value of the attribution to the Directive to be below 10-15% following the qualitative and quantitative assessment of the key elements above (and confirmed by stakeholder consultations, which led to the conclusion that the Directive has a non-negligible attribution, rated to be above 15-20% as a result). In any case, any attribution of 20% to 30% all generated positive consumer detriment. The initial consideration of a range of benefit of 20% to 30% show this. For the Final Report this was specified to be a conservative estimate of 22.5% (at the lower end of this range), consistently showing benefits to be similar to or outweigh costs across the entire range of 20-30%.

Below the approach followed to calculate the variation in consumer detriment and the incremental effect of the Directive (assuming beginning of 2010 as baseline) since its transposition is described.

Step 1. Estimate the average magnitude of consumer personal financial detriment per problem.

The estimation of the average magnitude of the consumer of personal financial detriment suffered by an individual due to a problem (i.e., magnitude of the financial detriment) considered the data reported in the CIVIC (2017) for the consumer detriment for “Loans, credit and credit cards” in the year 2017 for the following countries: UK, Poland, France and Italy. This was extrapolated for each of the other EU28 countries as described below.

Table 1 - Magnitude of financial detriment

The magnitude of the financial detriment in the period 2010-2018 was adjusted based on the Consumer Markets Scoreboard data on “Extent of detriment suffered as a result of problems experienced with products/services or supplier/retailer” 334 .

Table 2 - Severity of consumer problems in the period 2010-2017 (scale 0-10, where 0 is low severity and 10 high severity)

Source: extrapolation based on Consumer Markets Scoreboard - *a liner regression was used to estimate the value for 2018, as the data for 2017 is the latest available

The magnitude of the financial detriment for each EU MS is presented below.

Table 3 - Magnitude of financial detriment 2010-2018 (euros at prices 2017)

Source: own calculations based on MMS and Civic (2017)

Step 2. Estimate the average time loss per problem

The estimation of the time loss per problem (see below) was done based on the data reported in CIVIC (2017). The number of hours for the period 2010-2018 was extrapolated using the data from Consumer Markets Scoreboard on “Extent of detriment suffered as a result of problems experienced with products/services or supplier/retailer” 335 .

The estimation of time losses and the monetisation of time losses (i.e., by using hourly earnings for monetising time losses) followed the methodology for measuring consumer detriment developed by CIVIC (2017) for DG JUST – “(…) a detailed step-by-step operational guidance to guide scientifically sound and resource efficient assessments of personal consumer detriment in markets across the EU”. The methodologies covers financial detriment, time loss and psychological detriment.

According to the CIVIC study, time losses for 2016 were estimated based on statements from consumers collected through surveys to consumers. In the Consumer Credit Directive evaluation supporting study, those time losses were extrapolated to other years based on the data on incidence rates of consumer complaints from the “markets scoreboards”. The underlying assumption was that time losses are proportional to the incidence rate of problems.

There are alternative ways to monetise the “value of time” (e.g., using stated preferences”), all with limitations. The CIVIC study discusses those approaches and respective limitations thoroughly and ends up proposing the use of average earnings (highlighting that, for example, one limitation might be that people may value their leisure time and working time differently).

Table 4 - Time losses 2010-2018 (number of hours per problem)

The consumer detriment resulting from time losses was monetised using the mean hourly earnings for each country in 2010 336 (see below).

Table 5 - Monetised time losses per country (million of euros, 2010 prices)